Churning or Excessive Trading¹
NASD Conduct Rule 2110 and IM-2310-2 (Fair Dealing with Customers)²

Principal Considerations in Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations in Introductory Section

Fine of $5,000 to $75,000³

Suspend respondent in any or all capacities for a period of 10 business days to one year.

In egregious cases, consider a longer suspension (of up to two years) or a bar.

¹ This guideline also is appropriate for annuity and mutual fund-related violations, including switching.

² This guideline also is appropriate for violations of MSRB Rule G-17.

³ As set forth in General Principle No. 6, Adjudicators should increase the recommended fine amount by adding the amount of a respondent's financial benefit.

Communications With The Public—Late Filing; Failing to File¹; Failing to Comply With Rule Standards or Use of Misleading Communications²
NASD Conduct Rules 2210, 2211(d), and 2220³

Principal Considerations in Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations in Introductory Section

Failure to File

1. Whether failure to file was inadvertent.

2. Whether communications with the public were circulated widely without having been filed with the Advertising Regulation Department.

3. Whether an individual respondent failed to notify a supervisor of a communication with the public.

Late Filing

1. Whether late filing was inadvertent.

2. Whether communications with the public were circulated widely before having been filed with the Advertising Regulation Department.

3. Number of days late.

Failure to Comply With Rule Standards/ Misleading

1. Whether violative communications with the public were circulated widely.

 
Failure to File

Fine of $1,000 to $15,000.

Late Filing

Fine of $1,000 to $10,000.

Failure to Comply/Misleading

Failure to Comply With Rule Standards or Inadvertent Use of Misleading Communications

Fine of $1,000 to $20,000.

Intentional or Reckless Use of Misleading Communications

Fine of $10,000 to $100,000.

 
Failure to File

In egregious cases, consider imposing, for a definite period, a "pre-use" filing requirement to obtain a FINRA staff "no objection" letter on proposed communications with the public.

Also consider suspending the responsible individual in any or all capacities for up to five business days.

Late Filing

In egregious cases, consider imposing, for a definite period, a "pre-use" filing requirement to obtain a FINRA Regulation staff "no objection" letter on proposed communications with the public.

Also consider suspending the responsible individual in any or all capacities for up to 10 business days.

 
Failure to Comply/Misleading

Failure to Comply With Rule Standards

In egregious cases, consider suspending the firm with respect to any or all activities or functions for up to one year and thereafter imposing, for a definite period, a "pre-use" filing requirement to obtain a FINRA staff "no objection" letter on proposed communications with the public.

Also consider suspending the responsible person in any or all capacities for up to 60 days.

 
Use of Misleading Communications With The Public

In cases involving inadvertent use of misleading communications, consider suspending firm with respect to any or all activities or functions for up to six months and thereafter imposing, for a definite period, a "pre-use" filing requirement to obtain a FINRA staff "no objection" letter on proposed communications with the public.

In cases involving intentional or reckless use of misleading communications with the public, consider suspending the firm with respect to any or all activities or functions for up to two years.⁴

Also consider suspending the responsible person in any or all capacities for up to two years.

In cases involving numerous acts of intentional or reckless misconduct over an extended period of time, consider suspending the firm with respect to any or all activities or functions for up to two years, suspending the responsible person in any or all capacities for up to two years, expelling the firm, and/or barring the responsible individual.

¹ Failing to file includes instances in which a respondent files with FINRA staff a communication with the public in response to a notice from FINRA staff that a necessary filing had not been made.

² This guideline is appropriate for disciplinary actions that name as respondents member firms that have violated NASD rules or associated persons who have circumvented the firm's procedures or violated the NASD's rules.

³ This guideline also is appropriate for violations of MSRB Rule G-21.

⁴ If an Adjudicator is considering suspending a firm's ability to execute transactions in the securities referenced in the violative communications, the Adjudicator should consider the potential ramifications to public investors of such a suspension.

Customer Account Transfer Contracts—Failure to Comply With Rule Requirements
NASD Uniform Practice Code Rule 11870¹

Principal Considerations in Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations in Introductory Section

1. Consider the nature of the violation – consider the respondent's transfer pattern, the number of days late, and whether respondent was late with delivery or validation.

Fine of $1,000 to $10,000.

In egregious cases, consider a higher fine of up to $50,000.

Individual

Consider suspending the responsible individual in any or all capacities for up to 30 business days. In egregious cases, consider a lengthier suspension of up to two years.

Firm

In egregious cases, consider suspending the firm with respect to any or all activities or functions for a period of up to two years.

¹ This guideline also is appropriate for violations of MSRB G-26.

Day-Trading Accounts—Failure to Comply With Risk Disclosure Requirements; Failure Appropriately to Approve an Account For Day Trading; Failure to Preserve Required Day-Trading Records
NASD Conduct Rules 2360 and 2361

Principal Considerations in Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations in Introductory Section

Failure to Comply With Risk Disclosure Requirements

1. Whether the firm failed to provide customer(s) with a risk disclosure statement.

2. Whether the firm provided its customer(s) with an inadequate risk disclosure statement, or furnished the risk disclosure statement to its customer(s) in an untimely manner or a manner not designed to provide actual notice.

3. Whether the firm failed to obtain NASD approval of an alternative disclosure statement or failed timely to seek NASD approval.

4. In all cases, consider the nature, quality, and timing of the risk disclosure actually provided to the customer(s).

5. Whether day trading was appropriate for the affected customer(s).

6. The number of affected customers.

Failure Appropriately to Approve an Account For Day Trading

1. Whether the firm permitted the customer(s) to engage in a day-trading strategy without the approval required by the rule.

2. Whether the firm failed to conduct a meaningful review before approving the customer account(s) for a day-trading strategy.

3. Whether the firm's approval of the customer account(s) for a day-trading strategy was inappropriate based on the facts it knew or should have known.

4. The timeliness of the approval of the customer account(s) for a day-trading strategy.

5. Whether engaging in a day-trading strategy was appropriate for the affected customer(s).

6. The number of affected customers.

Failure to Preserve Required Day-Trading Records

1. Whether the firm failed adequately to record its approval of the customer account(s) for day trading.

2. Whether the firm failed adequately to preserve the written customer agreement(s) to refrain from engaging in a day-trading strategy.

3. Whether the failure enabled problematic practices to occur and/or to escape detection.

 
Failure to Comply With Risk Disclosure Requirements

Fine of $5,000 to $100,000.

Failure Appropriately to Approve an Account For Day Trading

Fine of $5,000 to $100,000.¹

Failure to Preserve Required Day-Trading Records

Fine of $1,000 to $25,000.

 
Failure to Comply With Risk Disclosure Requirements

Consider suspending the responsible individual in any or all capacities for a period of 10 business days to one year.

In egregious cases, particularly cases involving numerous customers, consider suspending for a longer period (of up to two years) or barring the responsible individual and suspending the firm with respect to any or all activities or functions for a period of up to two years.

Failure to Comply With Risk Disclosure Requirements

Suspend responsible individual in any or all capacities for a period of 10 business days to one year. Consider suspending member firm with respect to any or all activities or functions for up to one year.

In egregious cases, particularly cases involving numerous customers, consider suspending the responsible individual for a longer period (up to two years) or barring the individual.

Also consider suspending the member firm for a longer period (of up to two years).

Failure to Preserve Required Day-Trading Records

In egregious cases, consider suspending the responsible individual in any or all capacities for up to 30 business days and suspending the firm in any or all activities or functions for up to 15 business days.

¹ As set forth in General Principle No. 6, Adjudicators should increase the recommended fine amount by adding the amount of a respondent's financial benefit.

Discretion—Exercise of Discretion Without Customer's Written Authority
NASD Conduct Rules 2110 and 2510¹

Principal Considerations in Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations in Introductory Section

1. Whether customer's grant of discretion was express or implied.

2. Whether firm's policies and/or procedures prohibited discretionary trading and/or whether the firm prohibited the respondent from exercising discretion in customer accounts.

Fine of $2,500 to $10,000.²

In egregious cases, consider suspending respondent in any or all capacities for 10 to 30 business days.

¹ This guideline also is appropriate for violations of MSRB Rule G-19(d).

² As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.

Guaranteeing a Customer Against Loss
NASD Conduct Rules 2110 and 2330¹

Principal Considerations in Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations in Introductory Section

1. Purpose and timing of the guarantee.

2. Whether respondent received a financial benefit from the guaranteed transactions.

Fine of $2,500 to $25,000.²

Consider suspending individual respondent in any or all capacities for up to 30 business days. In egregious cases, consider a longer suspension (of up to two years) or a bar.

Consider suspending member firm with respect to any or all activities or functions for up to 30 business days. In egregious cases, consider a longer suspension (of up to two years) or expulsion.

¹ This guideline also is appropriate for violations of MSRB Rule G-25.

² As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.

Institutional Sales Material—Failing to Establish and Maintain Written Procedures in Compliance with Rule Standards; Failing to Comply With Rule Standards Regarding Recordkeeping

NASD Conduct Rule 2211

Misrepresentations or Material Omissions of Fact
NASD Conduct Rule 2110 and/or Rule 2120¹

Principal Considerations in Determining Sanctions

Monetary Sanction²

Suspension, Bar, or Other Sanctions

See Principal Considerations in Introductory Section

Negligent Misconduct

Fine of $2,500 to $50,000.

Intentional or Reckless Misconduct

Fine of $10,000 to $100,000.

Negligent Misconduct

Suspend individual in any or all capacities and/or suspend firm with respect to any or all activities or functions for up to 30 business days.

Intentional or Reckless Misconduct

Suspend individual in any or all capacities and/or suspend firm with respect to any or all activities or functions for a period of 10 business days to two years.

In egregious cases, consider barring the individual and/or expelling the firm.

¹ This guideline also is appropriate for violations of MSRB Rule G-17.

² In cases involving misrepresentations and/or omissions as to two or more customers, the Adjudicator may impose a set fine amount per investor rather than in the aggregate. As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.

Penny Stock Rules—Failure to Comply With Rule Requirements
NASD Conduct Rules 2110 and SEC Rules 15g-1 through 15g-9

Principal Considerations in Determining Sanctions

Monetary Sanction¹

Suspension, Bar, or Other Sanctions

See Principal Considerations in Introductory Section

Negligent Misconduct

Fine of $5,000 to $100,000.

 
Willful Misconduct

Fine of the greater of $100,000 or $5,000 per violative transaction.

For egregious misconduct, require firm to offer rescission of violative trades to each customer.

Negligent Misconduct

Consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years.

Willful Misconduct

Consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual in any or all capacities for up to two years.

In egregious cases, bar the responsible individual and/or expel the firm.

¹ As set forth in General Principle No. 6, Adjudicators should increase the recommended fine amount by adding the amount of a respondent's financial benefit.

Pricing—Excessive Markups/Markdowns and Excessive Commissions
NASD Conduct Rules 2110 and 2440 and IM-2440¹

Principal Considerations in Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations in Introductory Section

1. Whether respondent dominated and controlled the market in the subject security or securities.

2. Whether respondent (registered representative) had discretion as to the amount of markups, markdowns, or commissions on each trade.

Fine of $5,000 to $100,000 plus (if restitution is not ordered) the gross amount of the excessive markups, markdowns, or excessive commissions.

Consider suspending individual respondent in any or all capacities for up to 30 business days and requiring demonstrated corrective action with respect to the firm's markup/markdown policy or commission policy.

In egregious cases, consider suspending individual respondent in any or all capacities for up to two years or barring individual. For the firm, consider suspending with respect to any or all activities or functions for up to two years or expelling the firm.

¹ This guideline also is appropriate for violations of MSRB Rule G-30.

Research Analysts and Research Reports—Failing to Comply With Rule Requirements Regarding (1) Relationships Between Research Department and Investment Banking Department; (2) Compensation for Research Analysts; and (3) Relationships Between Research Analysts and Subject Companies¹

NASD Conduct Rule 2711(b), 2711(c), 2711(d), 2711(e), 2711(j)

Research Analysts and Research Reports—Failing to Comply With Rule Requirements Regarding (1) Restrictions on Publishing Research Reports and Public Appearances of Research Analysts; (2) Restrictions on Personal Trading of Research Analysts; and (3) Disclosure Requirements for Research Reports and Public Appearances of Research Analysts²

NASD Conduct Rule 2711(f), 2711(g), 2711(h)

Suitability—Unsuitable Recommendations
NASD Conduct Rule 2110 and 2310¹

Principal Considerations in Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations in Introductory Section

Fine of $2,500 to $75,000²

Suspend respondent in any or all capacities for a period of 10 business days to one year.

In egregious cases, consider a longer suspension (of up to two years) or a bar of an individual respondent. Also consider suspending respondent member firm with respect to any or all activities or functions for up to two years.

¹ This guideline also is appropriate for violations of MSRB Rule G-19.

² As set forth in General Principle No. 6, Adjudicators should increase the recommended fine amount by adding the amount of a respondent's financial benefit or require respondent to offer rescission to the injured customers.

Telemarketing—Failing to Comply With Time-of-Day Restrictions and Do-Not-Call Lists; Failing to Establish and Maintain Procedures to Comply with Rule 2212(a)
NASD Conduct Rule 2212

Principal Considerations in Determining Sanctions

See Principal Considerations in Introductory Section.

Failure to Comply with Time-of-Day Restrictions or Do-Not-Call Lists

1. Whether violations were widespread within the firm.

2. Number of calls that violated restrictions.

3. Whether there are patterns of abuses relating to when telephone calls are placed or to the repeated contacting of persons who have previously requested to be placed on a do-not-call list.

4. Whether firm made reasonable efforts to establish an effective call-blocking system for any members of the public requesting to be placed on a do-not-call list.

Monetary Sanction

Failure to Comply with Time-of-Day Restrictions or Do-Not-Call Lists

Fine of $5,000 to $25,000.

Suspension, Bar, or Other Sanctions

Failure to Comply with Time-of-Day Restrictions or Do-Not-Call Lists

Consider suspending responsible individual for up to 30 business days. In egregious cases, consider suspending the responsible individual in any or all capacities for up to two years. Also, consider suspending the firm with respect to any or all activities or functions, including telemarketing activities, for up to one year.

Failure to Establish and Maintain Procedures to Comply with Rule 2212(a)

1. Nature and extent of underlying misconduct that resulted from the deficient procedures, if any.

2. Whether firm made reasonable efforts to establish an effective call-blocking system for any members of the public requesting to be placed on a do-not-call list.

3. Whether there are patterns of abuses relating to when telephone calls are placed or to the repeated contacting of persons who have previously requested to be placed on a do-not-call list.

Failure to Establish and Maintain Procedures to Comply with Rule 2212(a)

Fine of $5,000 to $50,000. In egregious cases, consider a higher fine.

Failure to Establish and Maintain Procedures to Comply with Rule 2212(a)

Consider suspending responsible individual in any or all capacities for up to 30 business days. Consider limiting activities of appropriate branch office or department for up to 30 business days.

In egregious cases, consider suspending the responsible individual for up to two years. In egregious cases, also consider limiting activities of appropriate branch office or department for more than 30 days or suspending the firm in any or all activities or functions, including telemarketing activities, for up to one year.

Trading Ahead of Research Reports
NASD Conduct Rule 2110 and IM-2110-4

Principal Considerations in Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations in Introductory Section

1. Whether the respondent member firm had developed "Chinese Wall" procedures to prevent the trading department from utilizing advance knowledge of the content and issuance of research reports in making trading decisions.

Fine of $5,000 to $100,000.¹

Firm

Consider suspending the firm with respect to any or all activities or functions and/or suspending the responsible individual for up to two years.

In egregious cases, consider expelling the firm and/or barring the responsible individual.

Individual

Consider suspending the individual respondent in any or all capacities for up to two years.

In egregious cases, consider barring the individual.

¹ As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.

Unauthorized Transactions and Failures to Execute Buy and/or Sell Orders
NASD Conduct Rule 2110 and IM-2310-2¹

Principal Considerations in Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations in Introductory Section

1. Whether respondent misunderstood his or her authority or the terms of the customer's orders.

2. Whether the unauthorized trading was egregious.²

Fine of $5,000 to $75,000.³

Suspend individual respondent in any or all capacities for a period of 10 business days to one year.

In egregious cases,⁴ consider a longer suspension (of up to two years) or a bar of an individual respondent. Also consider suspending respondent member firm with respect to any or all activities or functions for up to two years.

¹ This guideline also is appropriate for violations of MSRB Rules G-17 and G-19.

² The NAC has identified in its decisions the following categories of egregious unauthorized trading: 1) quantitatively egregious unauthorized trading, i.e., unauthorized trading that is egregious because of the sheer number of unauthorized trades executed; 2) unauthorized trading accompanied by aggravating factors, such as, efforts to conceal the unauthorized trading, attempts to evade regulatory investigative efforts, customer loss, or a history of similar misconduct (this list is illustrative, not exhaustive); and 3) qualitatively egregious unauthorized trading. Two factors are relevant to a determination as to whether unauthorized trading is qualitatively egregious: 1) the strength of the evidence, and 2) the respondent's motives, i.e., whether the respondent acted in bad faith or as a result of a reasonable misunderstanding. See, e.g., In re Daniel S. Hellen, Complaint No. C3A970031 (NAC June 15, 1999).

³ As set forth in General Principle No. 6, Adjudicators should increase the recommended fine amount by adding the amount of a respondent's financial benefit or require respondent to offer rescission to the injured customers.

⁴ See note 2.