| Monday, April 12, 2004
Nancy Condon 202-728-8379
Herb Perone 202-728-8464
NASD Fines Long Island Brokerage Firm David Lerner Assoc. $100,000 for Prohibited Mutual Fund and Variable Product Sales Contests
Washington, D.C.—NASD announced today that it has censured and fined Long Island-based brokerage firm David Lerner Assoc. $100,000 for running sales contests to promote certain David Lerner proprietary mutual funds and selected variable annuity and variable life insurance products, all in violation of NASD rules.
Between Sept. 25, 2000 and March 21, 2003, the firm conducted six sales contests and offered or awarded various prizes to the winning broker-dealer representatives, including three- and four-day trips to resorts in Puerto Rico, the Bahamas, Las Vegas and New England. Other prizes included valuable home electronics, such as large-screen television sets, digital cameras and DVD players. The estimated value of the contest awards totaled $700,000.
Two of the contests violated NASD rules because the sales contests offered credit only for sales of David Lerner’s own proprietary mutual funds. Four other contests violated NASD rules because the firm’s proprietary mutual funds or selected variable products received favorable treatment for contest purposes.
“The sales contests engaged in by the firm increase the potential for investors to be steered into investments that are in the representatives’ financial interests instead of the best interests of the customers,” said Mary L. Schapiro, NASD’s Vice Chairman and President of Regulatory Policy and Oversight. “Our rules are designed to prevent the conflicts of interest that arise when brokers are encouraged to recommend investments based on lucrative awards paid by their employers, rather than on the merits of the investments and the needs of their customers.”
NASD also charged David Lerner Assoc. and its Vice President of Compliance, Daniel E. Chafetz, with supervisory violations for failing to have any supervisory systems or procedures in place to detect and prevent the sales contest violations in question. Additionally, NASD charged the firm and its Vice President of Sales, John Dempsey, Sr., with failing to supervise the firm’s sales force to prevent the sales contest violations. NASD censured Chafetz and Dempsey and fined each $10,000 for their supervisory violations.
In settling these charges, David Lerner Assoc., Chafetz and Dempsey neither admitted nor denied the charges.
Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes available BrokerCheck at no charge to the public. In 2003, members of the public used this service to conduct more than 2.9 million searches for existing brokers or firms and requested almost 180,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to the program by going online to www.nasdbrokercheck.com. Investors can also access this service by calling 1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business-from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web site at www.nasd.com.