|Thursday, January 11, 2001
Nancy A. Condon
Amy E. Hyland
NASD Regulation Launches Investor Alert; First Alert Focuses on Improper Sale of Promissory Notes
Washington, D.C. — NASD Regulation, Inc., today launched a program to inform investors about key regulatory trends in the securities industry. Called Investor Alert, the inaugural issue, found on NASD Regulation’s Web site, warns investors about improper sales of promissory notes. NASD Regulation expects that by providing more immediate information gathered by regulators to investors, investors will be less likely to become victims of fraud. The first Alert emphasizes that a significant number of investors purchased promissory notes that were fraudulent, not registered or sold by unlicensed salespersons, creating a lucrative cottage industry for some brokers and a risky purchase for investors.
"The Investor Alert program will be a very important tool for investors," said Robert R. Glauber, CEO and President of the NASD. "By taking stock of what we see in our examinations and cases, and then quickly conveying useful information to the investor, we are fulfilling an important purpose of the NASD – to provide investors with the facts that will guide successful, safe investment strategies."
"We have the advantage of being able to see trends in the sale of particular products, and we feel that it is critical for NASD Regulation to let investors know what we see, when we see it," said Mary L. Schapiro, President of NASD Regulation. "When investors take the time to learn the facts about a product like promissory notes, they reduce their chance of making an unsatisfactory investment choice or, worse, becoming a victim of fraud."
In 2000, NASD Regulation’s Enforcement Department brought 37 cases against 39 individual brokers who sold more than $12 million in notes to more than 300 investors. In nearly every case, NASD Regulation found that promissory notes were sold to investors without the knowledge or supervision of the broker’s employing firm, a practice that violates the NASD’s "selling away" rule. Unless the broker has the employing firm’s written authorization, this rule prohibits brokers from selling products to customers that the firm is not aware of and has not authorized. The rule protects investors and brokerage firms by ensuring that firms are aware of and responsible for the products sold by their sales force. The examining staff at NASD Regulation also found promissory notes being sold through deceptive sales practices with the promise of very "high" or "guaranteed" returns. Investors should know that no investment can be sold with the promise of a high return.
The promissory notes Investor Alert defines what the product is, what to be wary of, and advises investors to check with regulators to find out whether the seller and note are in compliance with federal and state laws. Investors may also obtain information about their broker/salesperson through NASD Regulation’s Public Disclosure Program. Finally, as advised by the Investor Alert, investors can check out a company selling notes with the Better Business Bureau.
Investors can obtain more information about NASD Regulation as well as the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999, or by sending an e-mail through NASD Regulation’s Web site.
NASD Regulation oversees all U.S. stockbrokers and brokerage firms. NASD Regulation, The American Stock Exchange®, NASD Dispute Resolution, Inc. and The Nasdaq Stock Market, Inc., are subsidiaries of the National Association of Securities Dealers, Inc. (NASD® ), the largest securities-industry self-regulatory organization in the United States.