Fall Issue/September 2007 Update

The Office of General Counsel (OGC) of FINRA 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 and decisions of the Securities and Exchange Commission (SEC) in FINRA cases).

 

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 FINRA Web site. 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 FINRA. 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: User Support -- Research, 9509 Key West Avenue, Rockville, Maryland 20850, Attn: Research.

 

Exam Cheating

  • Registered Representative Barred for Attempting to Cheat on a Series 24 Principal Examination - NASD's National Adjudicatory Council barred a registered representative who attempted to cheat on a Series 24 principal examination by hiding study materials that he intended to use during the test in a restroom of the testing center. NASD concluded that the representative's conduct violated Rule 2110 and barred the representative in all capacities.

Failure to Provide Information

  • Registered Representative Barred for Failing to Provide Information and Testimony in Response to an NASD Request - NASD's National Adjudicatory Council barred a registered representative who failed to provide information and testimony in response to an NASD request. NASD rejected the representative's argument that he could invoke his Fifth Amendment privilege against self-incrimination to avoid compliance with NASD staff's information requests. NASD concluded that the representative violated Rules 2110 and 8210, barred him in all capacities, and assessed appeal costs.

Forgery

  • Registered Representative Fined and Suspended for Signing a Customer's Name to an Account Transfer Form without the Customer's Knowledge or Consent - NASD settled a matter involving a registered representative who, in connection with changing his firm affiliation, signed a customer's name on an account transfer form without the customer's knowledge or consent. The customer complained to the representative's new firm. The representative contacted the customer and attempted to convince her to withdraw her complaint. NASD concluded that the representative's conduct violated NASD Rule 2110, suspended the representative in all capacities for four months, and fined him $10,000.
  • Registered Representative Fined and Suspended for Signing Customers' Names to Updated Forms without the Customers' Knowledge or Consent - NASD settled a matter involving a registered representative who signed customer names to updated risk tolerance forms without the customers' knowledge or consent. The representative generally copied customer responses from earlier risk tolerance forms and then signed the customers' names to the updated forms. NASD found that the representative's conduct violated Rule 2110 and IM-2310-2, suspended the representative in all capacities for nine months, and fined him $5,000.

Outside Business Activities

  • Registered Representative Fined and Suspended for Conducting Outside Business Activities without Providing Prior Written Notice to His Member Firm - NASD settled a matter involving a registered representative who operated a rental company without providing prior written notice to his member firm. NASD held that the representative violated Rules 2110 and 3030, fined the representative $10,000, and suspended him for 90 days in all capacities.
  • Registered Representative Fined and Suspended for Conducting Outside Business Activities without Providing Prior Written Notice to His Member Firm - NASD settled a matter involving a registered representative who accepted compensation for performing recruiting services without providing prior written notice to his member firm. NASD concluded that the representative violated Rules 2110 and 3030, suspended the representative in all capacities for 30 business days, and fined him $5,000.

Private Securities Transactions

  • Registered Representative Suspended, Fined, and Ordered to Pay Restitution for Private Securities Transactions - NASD settled a matter involving a registered representative who sold securities to two public customers away from his member firm without requesting or obtaining the member firm's prior written approval. NASD concluded that the representative's actions violated NASD Rules 2110 and 3040, suspended him in all capacities for six months, fined him $10,000, and ordered restitution of $26,000.
  • Registered Representative Suspended, Fined, and Ordered to Disgorge Profits for Selling Promissory Notes Away from His Member Firm - NASD settled a matter involving a registered representative who sold promissory notes to 18 public customers without requesting or receiving prior written approval from his member firm. NASD concluded that the representative violated NASD Rules 2110 and 3040, suspended the representative in all capacities for nine months, fined the representative $5,000, and ordered him to disgorge ill-gotten gains of $30,000.

Unauthorized Trading

  • Registered Representative Suspended and Fined for Effecting Unauthorized Transactions - NASD's National Adjudicatory Council issued a decision in which it fined and suspended a registered representative for effecting two unauthorized transactions in a customer's trust account. NASD concluded that the representative violated Conduct Rule 2110, suspended him for three months, fined him $13,200, and ordered that he pay hearing and appeal costs.

Unsuitable Trades

  • Registered Representative Barred for Effecting Transactions in a Customer Account that Were Unsuitable for the Customer - NASD's National Adjudicatory Council barred a registered representative for effecting unsuitable trades in a customer's account. NASD held that the representative conducted inadequate investigation into the customer's financial situation and needs, erroneously concluded that the customer was wealthier than he was, executed trades that were not suitable for the customer, and traded excessively in the customer's account. NASD concluded that the representative violated Rules 2110 and 2310 and barred the representative in all capacities.