Winter Issue/December 2004
The Office of General Counsel of NASD Regulatory Policy and Oversight ("OGC") 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 (National Adjudicatory Council ("NAC") decisions and decisions of the Securities and Exchange Commission in NASD cases).
OGC chose the particular actions summarized below to call attention to, and remind registered representatives of, specific conduct that violates NASD Rules and may result in disciplinary action. This document is not intended to replace or supplement the disciplinary information and decisions contained on NASD's 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.
OGC reminds registered representatives that periodically they should review their Central Registration Depository ("CRD") information to check that it is current. Every registered representative can review his own CRD information by requesting a copy of his "Individual Snapshot" from NASD. Requests must be in writing and must include the representative's name, home address, social security number or CRD number, and signature. Requests may be sent via facsimile to (301) 216-2716 or via first class mail to: Research (Snapshot), 9509 Key West Avenue, Rockville, Maryland 20850, Attn: Research.
Conduct Inconsistent with High Standards of Commercial Honor and Just and Equitable Principles of Trade
- Registered Representative Suspended and Fined for Using Business Stationery that Contained Professional Designations that He Did Not Possess – NASD settled a matter involving a registered representative who ordered and used business stationery and business cards that inaccurately listed professional designations that the representative did not in fact possess. NASD found that the representative's conduct violated Conduct Rule 2110, suspended the representative in all capacities for 30 business days, and fined him $5,000.
- Registered Representative Suspended and Fined for Attempting to Settle Customer Complaints Without the Knowledge, Authority, or Approval of Member Firm Employer – NASD settled a matter involving a registered representative who attempted to enter into settlement agreements with customers without the knowledge, authority, or approval of his member firm employer. In an effort to make up for losses that the customers had suffered, the representative executed promissory notes whereby he agreed to pay the customers more than $1,000 per month for 12 months. NASD found that the representative's efforts to settle with his customers without the knowledge or consent of his member firm employer violated NASD's rules. NASD suspended the representative in all capacities for three months and fined him $5,000.
Failure to Disclose on Form U4
- Registered Representative Suspended and Fined for Failing to Disclose Felony Charge on a Form U4 – NASD settled a matter in which a registered representative willfully failed to disclose on his Form U4 that he had been charged with a criminal felony offense. The representative was not convicted of a felony and pled guilty to a reduced misdemeanor charge. Five years after the misdemeanor conviction, the representative failed to disclose that he had been charged with a felony on a Form U4. NASD found that the representative's actions violated NASD rules, fined the representative $5,000, and suspended him in all capacities for six months. Additionally, because 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 Suspended and Fined for Failing to Amend Form U4 to Disclose Misdemeanor Charge – NASD settled a matter involving a registered representative who willfully failed to amend his Form U4 to disclose that he had been charged with two misdemeanor counts involving insurance fraud. (The representative's member firm employer subsequently amended the representative's Form U4 to disclose his later felony conviction on these charges.) NASD fined the registered representative $5,000 and suspended him in all capacities for three months. 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.
Falsification of Firm Records
- Registered Representative Suspended and Fined for Signing Customer Names to Non-Solicitation Letters – NASD settled a matter involving a registered representative who improperly signed the names of three customers on non-solicitation letters required by the member firm with which she worked in connection with sales of low-priced securities. The registered representative signed the customers' names without the customers' prior knowledge. NASD found that the representative's actions violated Rule 2110, suspended the registered representative in all capacities for 10 business days, and fined him $5,000.
Private Securities Transactions
- Registered Representative Fined and Suspended 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 for compensation without providing notice to or obtaining prior approval from his employer firm. Like NASD, the SEC rejected the representative's contention that he did not know that the instruments were securities and that he had relied on the advise of a supervisor who had informed the representative that the instruments were insurance products. The SEC also affirmed NASD's finding that an oral exchange with a supervisor could not substitute for the written notice and approval required by NASD rules for private securities transactions. The SEC affirmed NASD's finding that the representative violated NASD rules, suspended the representative from associating with any member firm in any capacity for 18 months, fined the representative $62,000, and assessed costs.
- Registered Representative Barred for Recommending to a Customer Unsuitable Trades, Preparing False Account Statements, and Signing a Customer's Name to a Margin Agreement – NASD found that a registered representative made unsuitable recommendations to a customer, prepared and submitted to the customer false account statements in order to conceal the losses that the customer sustained in her account, and signed the customer's name to a margin account agreement. NASD rejected the representative's argument that his discussing individual trades with his customer and outlining the trading strategy for her should counter NASD's finding of misconduct. NASD also found that, even if the customer had requested that the representative sign the margin agreement for her, the representative should have known that it was inappropriate and unethical for him to sign the customer's name. NASD barred the registered representative in all capacities and assessed costs.
Use of Discretion Without Prior Acceptance
- Registered Representative Suspended and Fined for Exercising Discretion in a Customer Account Without Prior Member Firm Acceptance – NASD settled a matter involving a registered representative who exercised discretion by executing trades in the accounts of three customers without having obtained prior written acceptance of the accounts as discretionary by his employer member firm. NASD found that the representative's conduct violated NASD's rules, suspended the registered representative for 30 business days from associating with any member firm in any capacity, and fined the representative $5,000.