## Facts

- Charles A. Roth was a registered representative associated with R.B. Marich, Inc., an NASD member firm.
- During 1985–1986, Roth participated in seven securities sales involving insurance-company securities outside his firm.
- Roth conducted the transactions as an independent business: he used his own stationery, billed and received payment in his own name, and maintained separate records and a separate office from the firm.
- The NASD charged Roth with effecting private securities transactions without required prior written notice to (and approval from) his member firm under NASD Rules of Fair Practice Article III, §§ 1 and 40.
- The NASD also charged Roth with violating Exchange Act § 15(a)(1) by acting as a broker-dealer without registration when conducting transactions independently of his association with the firm.
- The NASD imposed a monetary fine, a six-month suspension from association with any NASD member firm, and a requirement that Roth requalify by examination.
- On administrative appeal, the SEC vacated sanctions as to one transaction, reduced the fine to $105,000, and otherwise sustained the NASD’s findings and sanctions.
- Roth petitioned for judicial review, challenging the rules as vague, the SEC’s legal interpretations, the evidentiary basis for the findings, and the severity of sanctions.

## Issues

1. Whether the NASD private securities transaction rules and penalty provisions were unconstitutionally vague as applied to Roth.
2. Whether Exchange Act § 15(a)(1)’s exemption for a natural person “associated with a broker or dealer” covers securities activity conducted outside the scope of that association.
3. Whether substantial evidence supported the SEC’s findings that Roth effected private securities transactions and acted as an unregistered broker-dealer.
4. Whether the SEC abused its discretion in sustaining the sanctions (as modified), including the $105,000 fine, suspension, and requalification requirement.

## Decision

- The court denied the petition for review and affirmed the SEC’s order.
- The NASD rules and penalty framework were not unconstitutionally vague as applied to Roth’s conduct.
- The SEC reasonably interpreted § 15(a)(1) to exempt an associated natural person only when acting within the scope of the association with a registered broker-dealer.
- Substantial evidence supported findings that Roth sold securities away from firm supervision and functioned as a broker-dealer in his own capacity.
- The sanctions, as modified by the SEC, were not excessive and did not reflect an abuse of discretion.

## Legal Principles

- A vagueness challenge generally fails where regulated conduct falls within the core conduct targeted by the rule and the rule provides adequate notice and enforceable standards as applied.
- Exchange Act § 15(a)(1)’s exemption for a natural person “associated with a broker or dealer” does not necessarily shield independent securities activity conducted outside the associated firm’s supervision; the SEC may construe the exemption as limited to activity within the association’s scope.
- In review of SEC orders affirming self-regulatory organization discipline, factual findings are sustained if supported by substantial evidence in the administrative record.
- Sanctions affirmed by the SEC are upheld absent a showing that they are arbitrary, capricious, unwarranted in law, or an abuse of discretion, including where the SEC has already mitigated the penalty.

## Conclusion

The D.C. Circuit upheld SEC-approved NASD discipline for “selling away” and unregistered broker-dealer activity, holding that the applicable NASD rules were sufficiently clear as applied, the SEC reasonably limited § 15(a)(1)’s association-based exemption to activity within the scope of the association, the findings were supported by substantial evidence, and the modified sanctions were within the SEC’s discretion.


Roth v. Sec. & Exch. Comm'n, 22 F.3d 1108 (D.C. Cir. 1994)