Unpublished Disposition, 902 F.2d 1580 (9th Cir. 1989)

MEMORANDUM^** 

Curtis I. Wilson petitions for review of the decision of the Securities and Exchange Commission (SEC) affirming the National Association of Securities Dealers (NASD) decision to take disciplinary action against him for violation of the NASD Rules of Fair Practice. We have jurisdiction pursuant to 15 U.S.C. § 78y(a) and affirm.

* After a district committee hearing on October 29, 1985 and a review by the Board of Governors on February 13, 1987, the NASD found that Wilson made unsuitable investment recommendations to a customer, effected unauthorized transactions, and guaranteed a second customer against loss, all in violation of the Rules of Fair Practice. It censured Wilson, fined him $15,000, suspended him from association with any NASD member for one year, and required him to requalify as a registered representative. On January 6, 1989, after an independent review of the facts, the SEC affirmed the decision of the NASD.

II

Wilson contends that the decision of the NASD should be reversed because it violated its own rules. Article II, Section 6(a) of the Association's Code of Procedure, in effect at the time of Wilson's hearing, required a hearing panel to consist of three or more persons associated with members of the NASD, at least two of whom were members of the District Business Conduct Committee.¹  The committee which conducted Wilson's initial hearing was composed of only two such persons.

The scope of our review of administrative decisions is narrow and such decisions will be upheld unless they are arbitrary, capricious, or an abuse of discretion. 5 U.S.C. § 706(2) (A) (1982); Simpson v. Hegstrom, 873 F.2d 1294, 1297 (9th Cir. 1989). It is settled law that a procedural error must be shown to cause prejudice to appellant before an administrative decision can be set aside. Northwest Coalition for Alternatives to Pesticides v. Lyng, 844 F.2d 588, 595 (9th Cir. 1988). See also 5 U.S.C. § 706; Kolek v. Engen, 869 F.2d 1281, 1286 (9th Cir. 1989); County of Del Norte v. United States, 732 F.2d 1462, 1467 (9th Cir. 1984), cert. denied sub nom., Association of California Water Agencies v. United States, 469 U.S. 1189 (1985). We may reverse the decision of the SEC only for substantial error in administrative procedure that created prejudice. Kolek, 869 F.2d at 1286.

The SEC found that the reduced size of the hearing committee created no prejudice because the ultimate decision was made by the full district panel, and was reviewed de novo by the NASD Board of Governors. The six-member panel of the SEC also reviewed the record de novo. Based on these facts, we find the SEC decision is neither arbitrary, capricious nor an abuse of discretion.

Wilson's reliance on Brown v. Louisiana, 447 U.S. 323 (1980), and Ballard v. U.S., 329 U.S. 187 (1946), is misplaced. Brown and Ballard dealt with the composition of a jury in a criminal trial, not a panel in a civil, administrative hearing. "The judicial model of an evidentiary hearing is neither a required, nor even the most effective, method of decisionmaking" in administrative agencies. Mathews v. Eldridge, 424 U.S. 319, 349 (1976).

Wilson's apparent reliance on Section 19(f) of the Exchange Act, 15 U.S.C. § 78s(f), is also misplaced. Section 19(f) deals with hearings to review denial of a request for membership in, or for association with a member of, a self-regulatory organization. The appropriate section dealing with disciplinary sanctions of one who is already a member, or associated with a member, Section 19(e), 15 U.S.C. § 78s(e), has no provision requiring that an action be set aside where the agency commits procedural error. Thus, the applicable statute does not provide a basis to invalidate the hearing.

III

Wilson also contends that his due process rights were violated because the witness at his hearing was examined and cross-examined by telephone thus denying him a face-to-face confrontation with the witness. Due process does not mandate a face-to-face confrontation in an agency hearing. "The fundamental requirement of due process is the opportunity to be heard at a meaningful time and in a meaningful manner." Mathews, 424 U.S. at 333. The procedure must be tailored to the "capacities and circumstances of those who are to be heard" and "substantial weight must be given to the good-faith judgments" of the administrative decision makers in determining the procedures which will provide for a fair consideration of the issues. Id. at 349. No fixed format is constitutionally required. Kolek, 869 F.2d at 1288. See 5 U.S.C. § 556(c) (procedures may be adopted in an agency hearing for submission of all of the evidence in written form as long as it accords the petitioner an opportunity for a "full and true disclosure of the facts").

We find no unfairness in the conduct of the NASD proceedings. The SEC, after reviewing the record, found that Wilson was given a full and fair opportunity to cross-examine the witness. Considering that the witness would have had to travel from Walla Walla to Seattle (approximately 300 miles) to attend the hearing, this procedure was a logical method of conducting the examination.²  We find that the SEC's determination was neither arbitrary, capricious, nor an abuse of discretion.

IV

Wilson disputes that the record supports the SEC's findings relative to his alleged violations of the NASD rules. We apply the substantial evidence standard when reviewing factual findings of an agency. National Labor Relations Board v. Howard Electric Co., 873 F.2d 1287, 1290 (9th Cir. 1989). Substantial evidence means relevant evidence which a reasonable mind might accept as adequate to support a conclusion. Desrosiers v. Secretary of Health & Human Services, 846 F.2d 573, 576 (9th Cir. 1988). We find substantial evidence reasonably supporting the SEC's conclusion that Wilson violated the NASD Rules of Fair Practice.

The decision of the Securities and Exchange Commission is AFFIRMED.