Quarterly Disciplinary Review - Fall Issue/September 2005
The Office of General Counsel (OGC) of NASD Regulatory Policy and Oversight publishes the Disciplinary Update to provide registered representatives with a summary sampling of recent disciplinary actions involving misconduct by registered representatives. The sample of disciplinary actions includes settled matters and decisions in litigated cases (Hearing Panel and National Adjudicatory Council (NAC) decisions and decisions of the Securities and Exchange Commission (SEC) in NASD cases).
OGC chose the particular actions summarized below to call attention to, and remind registered representatives of, specific conduct that violates NASD rules and will result in disciplinary action. This document is not intended to replace or supplement the disciplinary information and decisions contained on the NASD Web site. The decisions and settlements referenced in this document are subject to the restrictions regarding the release of disciplinary information contained in IM-8310-2 in the NASD Manual.
OGC reminds registered representatives that periodically they should review their Central Registration Depository (CRD) information to check that it is current. Every registered representative can review his own CRD information by requesting a copy of his "Individual Snapshot" from NASD. Requests must be in writing and must include the representative's name, home address, social security number or CRD number, and signature. Requests may be sent via facsimile to (301) 216-2716 or via first class mail to: Research (Snapshot), 9509 Key West Avenue, Rockville, Maryland 20850, Attn: Research.
Failure to Disclose Information on a Form U4
- Registered Representative Suspended and Fined for Willfully Failing to Disclose a Guilty Plea to a Misdemeanor on a Form U4 - NASD found that a registered representative who failed to disclose on a Form U4 a 1998 guilty plea for misdemeanor retail fraud (larceny under $100) violated NASD Rule 2110. NASD fined the representative $5,000 and suspended him in all capacities for one year. Additionally, since the settlement included a finding that the representative willfully failed to disclose material facts, under the Securities Exchange Act of 1934, the representative is statutorily disqualified from the industry.
Failure to Respond to Information Requests
- Registered Representatives Barred for Failing to Appear for On-the-Record Testimony before NASD Staff and Failing to Produce Requested Documents - NASD disciplined two registered representatives for failing fully to respond to NASD staff requests for information. NASD found that the registered representatives produced some, but not all, records requested by NASD staff in the course of its investigation of the representatives' member firm. The registered representatives also failed to appear for on-the-record testimony and claimed a Fifth Amendment right to avoid self-incrimination. NASD rejected the representatives' claimed defenses, concluded that the representatives violated NASD Rules 2110 and 8210, barred both representatives, and assessed hearing costs.
- Registered Representative Barred for Forging the Signatures of University Officials and Submitting Falsified Student Intern Documentation to His Member Firm - NASD found that a registered representative violated NASD rules when he forged the signatures of numerous university officials to hold harmless agreements and credit eligibility letters that the representative's member firm required for student interns who worked for college credit. NASD concluded that, although no customer documents were forged and no customer funds were jeopardized or misappropriated as a result of the forgeries, the registered representative's actions cast serious doubt on his commitment to industry standards. NASD rejected the representative's defense that a superior at the firm had encouraged the conduct by suggesting to him that the forged documents were meaningless and found that the representative's actions violated NASD Rule 2110. NASD barred him in all capacities.
Private Securities Transactions
- Registered Representative Fined and Suspended for Engaging in Private Securities Transactions without Providing Prior Notice to or Receiving Prior Approval from His Member Firm - NASD settled a matter involving a registered representative who, while associated with an NASD member, introduced firm customers to individuals from whom they could purchase particular stock away from the firm. The registered representative also facilitated the customer's purchases of the stock by having the customers make their checks payable to the representative and then issuing checks from his own bank account to the sellers. The registered representative did not receive a fee for his role in the sales. The representative failed to provide prior notice to and receive prior approval from his member firm for his participation in these sales. NASD held that the representative's actions violated NASD Rules 2110 and 3040, suspended the representative in all capacities for six months, and fined him $5,000.
- Registered Representative Fined, Ordered to Disgorge Profits, and Suspended for Engaging in Private Securities Transactions without Providing Prior Notice to or Receiving Prior Approval from His Member Firm - NASD settled a matter involving a registered representative who participated in private sales of promissory notes without providing prior notice to or receiving prior approval from his member firm. The registered representative earned commissions in excess of $50,000 on the sales. NASD found that the representative violated NASD Rules 2210 and 3040, suspended the representative in all capacities for 12 months, fined the representative $10,000, and ordered that the representative disgorgement any commissions not previously refunded to customers.
Sales of Securities without Proper State Registration
- Registered Representative Fined and Suspended for Assisting Another Registered Representative in Circumventing State Securities Licensing Requirements - NASD settled a matter involving a registered representative who arranged to help a co-worker circumvent state securities registration requirements. The representative, who was properly registered in the state at issue, entered into an agreement with a co-worker to falsify the account records of a customer who resided in the state at issue so that the registered representative appeared as the representative of record when in fact the co-worker actually handled the account. NASD concluded that the registered representative's conduct violated NASD Rule 2110, suspended the representative for 45 calendar days, and fined him $15,000.
Sharing in a Customer Account
- Registered Representative Suspended and Fined for Offering to Share in the Losses in a Customer Account - NASD settled a matter involving a registered representative who offered to share in the losses in a customer account. The customer had established an IRA rollover account in anticipation of early retirement. Over time, the account value dropped more than 30 percent. The registered representative for the account offered to pay the customer a set amount each month until the customer began receiving Social Security payments. The registered representative never actually commenced making payments to the customer. NASD found that the representative's conduct violated NASD Rule 2110. NASD suspended the representative in all capacities for 15 business days and fined him $5,000.
Violations by Research Analysts
- Registered Representative/Research Analyst Suspended and Fined for Violating Rules Related to Conduct by Research Analysts and Disclosures in Research Reports - NASD settled a matter involving a registered representative/research analyst who executed more than 40 separate sales for a profit in several different securities that were inconsistent with his "buy" or "strong buy" recommendations in research reports. He also purchased shares of issuers that he was covering during a prohibitive period beginning 30 calendar days before and ending five calendar days after the publication of a research report concerning the company. The registered representative/research analyst also failed to satisfy the following disclosure requirements in some or all of his research reports: the research analyst's financial interest in the covered company; the definition of "strong buy"; a sufficient price chart; the valuation method used to determine a price target; the risks that may impede the achievement of the price target; and the fact that the member firm issuing the report makes a market in the covered securities. NASD found that the registered representative/research analyst violated NASD Rules 2110 and 2711. NASD suspended him for six months in all capacities; concurrently suspended him for 18 months as a research analyst (series 87), and fined him $130,000.