Quarterly Disciplinary Review - Spring Issue/March 2007
The NASD Office of General Counsel Regulatory Policy and Oversight (OGC) 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 (National Adjudicatory Council (NAC) decisions and decisions of the Securities and Exchange Commission 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 may result in disciplinary action. This document is not intended to replace or supplement the disciplinary information and decisions contained on NASD’s 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.
OGC reminds registered representatives that they should periodically review their Central Registration Depository (CRD) information to check that it is current. Every registered representative can review his or her own CRD information by requesting a copy of his or her “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. Additional information about obtaining a CRD Individual Snapshot is available at http://www.finra.org/RegistrationQualifications/BrokerGuidanceResponsibility/Qualifications/index.htm.
Altering State Insurance Licensing Document
- Registered Representative Barred for Altering a State Insurance License To Appear Valid When It Had Expired - NASD settled a matter involving a registered representative who provided the insurance affiliate of a member firm with a copy of what the representative claimed to be a valid state insurance license. The representative's state insurance license, however, had expired. The representative had altered the document to make it appear current before submitting it to the member firm. NASD concluded that the representative's conduct violated NASD Rule 2110 and barred the representative in all capacities.
Circumventing Restriction on Customer's Margin Account
- Registered Representative Fined for Circumventing a Restriction Placed on a Customer's Margin Account - NASD settled a matter involving a registered representative who enabled a customer to circumvent a restriction placed on the customer's account. The representative was advised that his customer's account had been restricted for a period of one year due to an excessive number of Federal Reserve Board Regulation T extensions requested for the account. The representative thereafter placed 32 orders for stock purchases in the customer's account. For each of the transactions, the customer did not send sufficient cash to pay for the orders until three to seven days past the trade dates. The representative nonetheless caused the securities to be transferred from the member firm's omnibus account to the customer's accounts as "as of" trades, thereby causing credit to be extended to the customer in violation of Regulation T. NASD concluded that the representative violated Rule 2110 and fined the representative $5,000.
Conducting a Securities Business While Inactive Because of a Continuing Education Lapse
- Registered Representative Censured and Fined for Conducting a Securities Business While His Registration Was Inactive Because of the Representative's Continuing Education Lapse - NASD settled a matter involving a registered representative who engaged in activities that required registration when his registration was inactive because of the representative's failure to complete the regulatory element of NASD's continuing education requirements. NASD concluded that the representative violated NASD Rules 1120 and 2110, censured the representative, and fined the representative $10,000.
Failure to Respond Timely to NASD Requests for Information
- Registered Representative Suspended and Fined for Failing Timely to Respond to an NASD Request for Information - NASD settled a matter involving a registered representative who, on the advice of counsel, initially refused to respond to an NASD information request. The representative subsequently provided the response six months after NASD's initial request. NASD concluded that the representative violated Rules 2110 and 8210, suspended the representative in all capacities for three months, and fined the representative $7,500.
Failure to Disclose Criminal Charge on Form U4
- Registered Representative Suspended and Fined for Failing to Disclose on His Form U4 a Criminal Charge That Subsequently Was Dismissed - NASD settled a matter involving a registered representative who failed to disclose on his Form U4 a felony firearm charge that subsequently was dismissed. NASD concluded that the representative violated Rule 2110 and IM-1000-1, suspended the representative in all capacities for 45 days, and fined him $5,000.
Falsifying Insurance Documents
- Registered Representative Barred for Falsifying Insurance Documents to Earn Production Credits - NASD settled a matter involving a registered representative who falsely represented in insurance cover memoranda and allotment authorization forms that nine customers wanted to purchase insurance when, in fact, the customers did not. The representative's sole purpose in submitting these documents to his firm was to earn production credits so that he could attend an upcoming sales meeting. NASD found that the representative violated Conduct Rule 2110 and barred the representative in all capacities.
Market Timing - Evading Mutual Fund Restrictions on Market Timing
- Registered Representative Suspended and Fined for Evading Mutual Fund Market Timing Restrictions - NASD settled a matter involving a registered representative who, while associated with an NASD member firm, opened 11 accounts for four clients for the purpose of market-timing mutual funds. The representative requested and was given two new broker codes for his market-timing accounts in an effort to mislead mutual funds that monitored for representatives who engaged in excessive market timing. The representative executed in excess of 20 single trades with the new broker codes in mutual funds that had already blocked trades that he had attempted to execute with his existing broker code. These trades generated approximately $30,000 in profits for the representative's clients. NASD found that the representative's conduct violated Rule 2110, fined him $15,000, and suspended him in all capacities for 45 days.
Submitting False Audit Reports to a Member Firm
- Registered Person Barred as a Principal, Suspended in All Capacities, and Fined for Submitting Three False Audit Reports to a Member Firm - NASD settled a matter involving a registered person who was the branch manager for three non-OSJ branch offices of a member firm. The registered person submitted three audit reports to the member firm representing that he had conducted inspections of the three offices when, in fact, he had not. NASD concluded that the registered person's conduct violated Conduct Rule 2110, barred him as a principal, suspended him in all capacities for 30 days, and fined him $5,000.
Unsuitable Variable Annuity Recommendations
- Registered Representative Suspended and Fined for Recommending to a Customer Unsuitable Transactions Involving the Customer's Variable Annuity - NASD settled a matter involving a registered representative who recommended that a customer surrender her variable annuity and purchase mutual funds with the proceeds. NASD found that the representative made the recommendation without having a reasonable basis for believing that the recommendation was suitable in that the sub-accounts of the customer's existing variable annuity contained mutual funds similar to those that the representative recommended, and the customer could have invested in the mutual funds without additional cost and the loss of her death benefit. NASD concluded that the representative's conduct violated NASD Rules 2310 and 2110 and IM-2310-2, suspended the representative in all capacities for 30 days, and fined the representative $7,500.