Summer Issue/June 2004
The Office of General Counsel (OGC) of NASD Regulatory Policy and Oversight publishes the Disciplinary Update to provide registered representatives with a summary sampling of recent disciplinary actions involving misconduct by registered representatives. The sample of disciplinary actions includes settled matters and decisions in litigated cases (Hearing Panel and National Adjudicatory Council (NAC) decisions).
OGC chose the particular actions summarized below to call attention to, and remind registered representatives of, specific conduct that violates NASD Rules and will result in disciplinary action. This document is not intended to replace or supplement the disciplinary information and decisions contained on the NASD Web site (www.finra.org). The decisions and settlements referenced in this document are subject to the restrictions regarding the release of disciplinary information contained in IM-8310-2 in the NASD Manual.
Failure to Appear Before NASD for Testimony
- Registered Representative Barred for Failing to Appear to Testify On-the-Record Before NASD - The SEC affirmed an NASD decision involving a registered representative who refused to appear for on-the-record testimony before NASD. The SEC reiterated that registered representatives may not impose conditions, such as requiring a specific location for an NASD interview, under which they will agree to participate. The SEC upheld NASD's rejection of the representative's reliance on counsel defense and found that the medical condition of the representative's daughter did not mitigate the representative's failure to appear. The SEC affirmed NASD's imposition of a bar from associating with any member firm in any capacity.
Failure to Disclose on Form U4
- Registered Representative Suspended and Fined for Failing to Disclose Material Information on a Form U4 - NASD found that a registered representative failed to disclose on a Form U4 that he had been charged with the felonies of forgery and grand larceny. NASD found that the representative violated NASD Rule 2110 and IM-1000-1, even though the felony charges ultimately were dismissed against the representative. NASD suspended the representative in all capacities for 30 business days and fined him $5,000. Additionally, since the settlement included a finding that the representative willfully failed to disclose material facts, under the Securities Exchange Act of 1934, the representative may be statutorily disqualified from the industry.
- Registered Representative Barred for Failing to Disclose Felony Charges and Convictions on Form U4 - NASD settled a matter involving a registered representative who failed to disclose on a Form U4 that previously he had been charged and convicted as a minor of attempted robbery. NASD barred the registered representative from associating with any member firm in any capacity.
Falsification of Books and Records
- Registered Representative Barred for Submitting Falsified Documents to Firm - NASD settled a matter involving a registered representative who falsified documents that he submitted to his firm by pasting copies of customer signatures on firm documents and impliedly representing to the firm that the customers had in fact signed the documents. NASD barred the registered representative from associating with any member firm in any capacity.
- Registered Representative Barred and Ordered to Pay Restitution to Customers for Selling Securities through Fraudulent Misrepresentations and Omissions and Making Unsuitable Recommendations to a Customer - The SEC affirmed an NASD decision in which NASD found that a registered representative failed to disclose the speculative nature of a security that he recommended and that he failed to tell his customers that the issuer had never generated revenue, had no operations, and had incurred losses. The SEC also upheld NASD's findings that the registered representative fraudulently predicted to his customers that a recommended stock would double or triple in price. Like NASD, the SEC rejected the representative's defenses and affirmed NASD's imposition of a bar from associating with any member firm in any capacity and order to pay restitution to customers of more than $80,000.
Private Securities Transactions
- Registered Representative Barred for Participating in Private Securities Transactions without Notice to or Approval from Member Firm - The SEC affirmed an NASD decision involving a registered representative who participated in private securities transactions without providing notice to or obtaining prior approval from his employer firm. Like NASD, the SEC rejected the representative's argument that he did not know that the instruments were securities and that he relied on the advise of an attorney who provided an opinion that the instruments were not securities. The SEC affirmed NASD's finding that the representative violated NASD rules and barred him from associating with any member firm in any capacity.
Unauthorized Trading and Unsuitable Recommendations
- Registered Representative Fined and Suspended for Effecting Transactions without Authorization and Recommending Unsuitable Mutual Fund Switches - NASD settled a matter involving a registered representative who violated NASD rules when he purchased and sold mutual funds in one customer account without the customer's knowledge or authorization and recommended unsuitable mutual fund purchases and sales in another customer's account. NASD suspended the representative in all capacities for 18 months and fined him $33,500.