|Friday, January 18, 2002
Nancy A. Condon
NASD Regulation Charges Tower Square Securities and Files Complaints Against Two Individuals
Washington, D.C.—NASD Regulation, Inc., today announced a disciplinary settlement in which it fined Tower Square Securities $200,000 and directed it to make $4.3 million in restitution to the Jefferson Parish, (Louisiana) Public School System's employees deferred compensation plan. In addition, complaints were filed against a former registered representative with Tower and his business partner, Randall J. Veselik. The three enforcement actions involve the mishandling of the investment portfolio of the school system's deferred compensation retirement plan.
The complaint filed against the former Tower registered representative, Kevin B. Dermody, alleges that in July 2000, he entered into a contract to serve as investment manager of the deferred compensation plan operated by the Jefferson Parish school system for the benefit of its employees. At Dermody's direction, the plan liquidated its holdings of approximately $10.8 million in variable annuities, incurring surrender charges of more than $670,000. Proceeds of the annuity liquidation, along with additional plan contributions, were used by Dermody to purchase securities and insurance products including investment contracts issued by Hilltopper Enterprises, L.L.C., a company organized by Dermody and Veselik. Veselik was named in a separate complaint. The majority of plan funds invested with Hilltopper was lost through speculative trading. An independent audit of the plan as of June 30, 2001 revealed that liabilities to plan participants exceeded plan assets by more than $4.2 million.
"The mishandling of investment portfolios is serious misconduct and deserves meaningful and prompt sanctions," said Mary L. Schapiro, President of NASD Regulation, Inc. "We are pleased that the school system is to receive full restitution in this case."
These actions were investigated and filed by the NASD Regulation office in New Orleans and include:
1. Kevin B. Dermody - Case No. C05020001.
Kevin B. Dermody is named in this complaint, which alleges:
2. Randall J. Veselik - Case No. C05020002.
Randall J. Veselik is named in this complaint, which alleges:
3. Tower Square Securities, Inc. - Case No C05020003.
Tower Square Securities, Inc. settled the following charges without admitting or denying NASD Regulation allegations. The findings include:
The firm was censured, fined $200,000, ordered to pay restitution in the amount of $4,365,167.26, and ordered to engage a consultant to make recommendations for the adoption of policies and procedures with respect to the matters addressed in the settlement.
The issuance of a disciplinary complaint represents the initiation of a formal proceeding by NASD Regulation in which findings as to the allegations in the complaint have not been made and does not represent a decision as to any of the allegations contained in the complaint.
Under NASD rules, individuals and firms named in complaints can file a response and request a hearing before an NASD Regulation disciplinary panel. Possible sanctions include a fine, suspension, bar, or expulsion from the NASD.
Investors can obtain more information and 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 at www.nasdr.com.
The National Association of Securities Dealers, Inc. is the largest securities industry, self-regulatory organization in the United States. It is the parent organization of NASD Regulation, Inc.; the American Stock Exchange, LLC; and NASD Dispute Resolution, Inc. For more information about the NASD and its subsidiaries, please visit the following Web sites: www.nasd.com; www.nasdr.com; www.amex.com; www.nasdadr.com.