Thursday, April 14, 2005

The Long Journey Against Charles Zandford Ends

Charles Zandford's battle with the SEC has finally ended with a permanent bar from the securities industry, more than 15 years after he was caught stealing money from the account of a client at the brokerage firm Dominic and Dominic in Annapolis, MD.  Zandford was convicted of wire fraud in 1995 for taking money from the account of an elderly client who entrusted the funds to Zandford and his firm to care for his daughter, who suffered from psychological disorders, after his death.  Instead, Zandford converted the securities in the account into cash, and then transferred the funds into his own account.  After his conviction, the SEC went forward with its civil suit, relying on the conviction as res judicata.  Zandford challenged the securities fraud claim, arguing that the sales of the securities were legitimate, and the fraud only occurred after the transactions when he converted the funds to his personal use, and therefore was not "in connection with" the sale of a security, as required by Section 10(b) and Rule 10b-5.  The Fourth Circuit accepted that argument, but the Supreme Court reversed (SEC v. Zandford, 535 U.S. 813 (2002)), holding that the broad interpretation of that requirement adopted in Superintendent of Insurance v. Bankers Life (404 U.S. 6 (1971), was correct, that fraud essentially has to "touch" or "coincide" with a transaction in securities to come within the anti-fraud prohibitions of the federal securities laws.  The Commission received another permanent injunction and order to disgorge $343,000 against Zandford from the District Court in 2004, and the Fourth Circuit this time affirmed in December 2004.  With the time for further appeal to the Supreme Court having expired, the SEC took the final step of barring Zandford from the securities industry (administrative order here), although he is permitted to reapply after five years, but only after repaying his victims, which I suspect is unlikely. A sad tale is ended. (ph)

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