Interpretive Letter to Conrad C. Lysiak, Esq., Metropolitan Financial Center
August 2, 2001
Conrad C. Lysiak, Esq
Metropolitan Financial Center
601 West First Ave
Spokane, Washington 99201
RE: Letters of Caution
Dear Mr. Lysiak
I am responding to your letter of June 22, 2001 to Mary Schapiro in which you ask whether a Letter of Caution is: (1) a sanction within the meaning of Rule 8310(a)(6); (2) a finding of wrongdoing; (3) a finding of improper activity; and/or (4) a finding of violation of an NASD rule. You also ask for a copy of any NASD written policies or guidelines for issuing a Letter of Caution.
A Letter of Caution is a sanction within the meaning of Rule 8310(a)(6) of the NASD Procedural Rules when it results from a finding in a disciplinary proceeding initiated under the Rule 9000 Series of the NASD Code of Procedure. See Martin Lee Eng, Exchange Rel. No. 44224 (April 26, 2001).
Letters of Caution issued to member firms and associated persons by NASD Regulation, Inc. ("NASD Regulation"") staff are not sanctions within the meaning of Rule 8310(a)(6). Staff-issued Letters of Caution are a vehicle for staff to address a rule violation that does not warrant referral to the Department of Enforcement for formal disciplinary proceedings. See "Technical Matters" section of the NASD Sanction Guidelines (2001 ed.) at page 12.
All Letters of Caution represent a determination that a violation has occurred, either of an NASD rule or a rule of the Securities and Exchange Commission over which NASD Regulation has jurisdiction to enforce. There are no publicly available guidelines or written policies for issuing Letters of Caution.
I hope this letter is responsive to your inquiry. Please note that the opinions expressed in this letter are staff opinions only and have not been reviewed or endorsed by the Board of Directors of NASD Regulation. This letter responds only to the issues you have raised and does not necessarily address any other rule or interpretation of the NASD or all the possible regulatory and legal issues involved.
Very truly yours,
Shirley H. Weiss