SEC Can Overrule NASD, Court Says

A U.S. court Tuesday rejected a challenge by brokerage regulator NASD of the Securities and Exchange Commission’s power to overturn NASD sanctions.

The U.S. Court of Appeals for the District of Columbia Circuit dismissed an NASD petition seeking review of an SEC decision, saying the NASD -- formerly the National Assn. of Securities Dealers -- “must yield to the SEC’s view of the law.”

An NASD spokesman had no immediate comment.

At the heart of the dispute is a more than 5-year-old trading abuse case involving Amr Elgindy of Encinitas, Calif., former owner of Key West Securities Inc.

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 the firm $51,000 each.

Elgindy and Key West appealed the NASD ruling to the SEC, which oversees the regulator. In 2004, the SEC questioned the evidence in the Saf T Lok case and overturned most of the NASD’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.

In an unprecedented response, the NASD appealed the SEC’s actions, saying its reputation was being undermined.

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.