Quarterly Disciplinary Review - Spring Issue/March 2002
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).
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 (www.finra.org). 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.
Exercising Discretion Without Written Authority
Registered Representative Fined and Suspended for Exercising Discretion in a Customer Account Without Written Authority—NASD Regulation settled a matter involving a registered representative's exercising discretion, pursuant to verbal authority, by purchasing stock in a customer account without obtaining prior written authorization from the customer and prior written acceptance of the account as discretionary from the member firm that employed him. NASD Regulation suspended the registered representative in all capacities for 60 days and fined him $7,500.
Registered Representative Suspended and Fined for Recommending Unsuitable Securities Transactions—NASD Regulation settled a matter involving a registered representative's recommending, over a period of several years, purchases and sales of speculative and high-risk stocks and options in the trust account of a minor child. NASD Regulation concluded that the representative made the recommendations without having reasonable grounds for believing that the recommendations were suitable, suspended the representative for 10 business days, and fined him $7,500.
Failure to Respond to NASD Regulation Information Requests
Registered Representative Barred for Responding to NASD Regulation Request for Information Only After NASD Regulation Filed a Complaint—The NAC barred in all capacities a registered representative who failed to respond to an NASD Regulation request for information. The registered representative contended that he had changed his residential address and therefore could not access the documents necessary for him to form a response. The NAC held that, even if the representative did not have access to the requested documents, he was required to make a good faith effort to respond as fully as possible to the questions posed. The representative ultimately responded after NASD Regulation filed a complaint. The NAC held that the representative's belated response neither excused the misconduct nor lessened its seriousness. The NAC affirmed the Hearing Panel's imposition of a bar in all capacities.
Registered Representative Censured, Fined, and Suspended for Untimely Response to NASD Regulation Request for Information—The Securities and Exchange Commission (SEC) upheld the NASD's findings and sanctions against a registered representative who took more than five months to provide documents that NASD Regulation had requested in connection with the investigation of a member firm. The SEC, like the NAC, rejected the representative's argument that his referring the request to someone else at the firm, offering to allow NASD Regulation staff to review records in his office, and confusion about the information request should be considered as defenses. The SEC affirmed the NAC's imposition of a censure, $2,500 fine, and five-business-day suspension and noted that the SEC has in the past affirmed significantly more severe sanctions for similar misconduct.
Falsification of Documents
Registered Representative Fined, Suspended, and Required to Complete Continuing Education Program for Falsifying Documents Submitted to Member Firm—The NAC found that a registered representative violated NASD rules when he completed and submitted to the member firm that employed him a client agreement, new account approval form, and client option agreement and approval form for a fictitious customer. Although the registered representative ultimately admitted the misconduct at issue, the NAC considered it an aggravating factor that the representative initially told regulatory authorities that the client was not fictitious. The NAC fined the representative $5,000 and required him to complete the supervisory section of the Regulatory Element of the Continuing Education Program within 180 days. The NAC also increased the suspension in all capacities that the Hearing Panel imposed from two weeks to six months.
Registered Representative Fined and Suspended for Forging Customers' Signatures to Account Transfer Forms—NASD Regulation settled a matter involving a registered representative's forging the signatures of two public customers as trustees to an account transfer form without the trustee's or beneficiary's knowledge or consent. NASD Regulation suspended the registered representative in all capacities for six months and fined him $5,000.
Registered Representative Fined, Suspended, and Required to Requalify for Selling Away—The NAC found that a registered representative violated NASD rules when he sold promissory notes to more than 30 individuals (and earned more than $70,000 in commissions) without providing prior written notice to and receiving prior written approval from the member firm that employed him. The NAC rejected as a defense to the misconduct the representative's argument that he did not understand that the notes were securities and noted that the representative's claim to have provided the firm with oral notice did not excuse the misconduct. The NAC suspended the representative in all capacities for six months, fined him more than $75,000, and required him to requalify within six months.
Registered Representative Suspended and Fined for Selling Away—NASD Regulation settled a matter involving two sales of promissory notes away from the member firm with which the registered representative was associated. NASD Regulation suspended the representative in all capacities for 60 days and fined him $5,000.