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The Securities and Exchange Commission has the legal authority to overturn fines imposed by the NASD, a federal appeals court ruled this week. A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit rejected an appeal Tuesday by the NASD, formerly known as the National Association of Securities Dealers, which had argued its ability to regulate would be at risk if the SEC could overturn its disciplinary actions. Nevertheless, the court said the NASD lacked legal standing as “a person aggrieved” in dismissing the suit. “In short, NASD’s petition for review is not only unprecedented, it is legally insupportable,” the court said. The three-judge panel consisted of Judges Harry T. Edwards, Janice Rogers Brown, and David S. Tatel. The decision noted that when the NASD hands down a ruling it is acting as the private equivalent of an administrative law judge, and has no more authority than an ALJ to “seek review of a Commission decision.” The SEC has the authority to review any and all NASD disciplinary actions and decide their bona fides. John Heine, a spokesman for the SEC said “the commission is pleased with the decision.” An NASD spokeswoman said the organization is still reviewing the court’s decision. The dispute centered around a fine imposed on Amr Elgindy of Encinitas, Calif., and his company Key West Securities. NASD in 2000 accused Elgindy of manipulative short selling in shares of Saf T Lok Inc. in 1997. In 2003, an NASD adjudication committee barred Elgindy from the securities business and banished Key West Securities from the NASD, and fined him and his firm $51,000 each. Elgindy and Key West appealed the NASD ruling to the SEC, which oversees the regulator. In 2004, the SEC ruled that the NASD did not have sufficient evidence to support its allegations in the case and overturned most of the regulator’s sanctions. The agency lifted both Elgindy’s industry bar and Key West’s expulsion from the NASD, and reduced the fines to $1,000 each. Frustrated that such a high-profile case was overturned, the NASD took the extraordinary step of appealing the SEC’s decision in May 2004, saying that its reputation as a regulator was “injured” by the SEC. In a separate criminal case, Elgindy was convicted by a federal jury early this year of racketeering and fraud for parlaying illegal tips from an FBI agent into trading profits by short selling stocks of companies under government investigation. Copyright �2005 TDD, LLC. All rights reserved.

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