Quarterly Disciplinary Review - Summer Issue/June 2003
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.
Continuing Education - Failure to Comply with Requirements
- Registered Representative Fined $5,000 for Failing Timely to Complete the Regulatory Element — NASD settled a matter involving a registered representative who failed timely to comply with the regulatory element of NASD's continuing education requirements. (The representative's registration became inactive during the period of noncompliance.) NASD found that the registered representative violated NASD rules and fined him $5,000.
Failure to Disclose Information on a Form U-4
- Registered Representative Barred for Willfully Failing to Disclose Material Facts on a Form U-4 — NASD settled a matter involving a registered representative who willfully failed to disclose on a Form U-4 that he had been charged with, and convicted of, two misdemeanors involving retail theft. NASD found that the registered representative's actions violated NASD rules and barred him in all capacities. 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 may be statutorily disqualified from the industry.
- Registered Representative Barred for Willfully Failing to Amend his Form U-4 to Disclose Material Facts — NASD settled a matter involving a registered representative who willfully failed to amend his Form U-4 to disclose that he had been charged with, and convicted of, the felony offenses of fraud in the offer and sale of securities, perjury, and conspiracy. NASD found that the registered representative's actions violated NASD rules and barred him in all capacities. 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 may be statutorily disqualified from the industry.
Failure Timely to Respond to NASD Request for Information
- Registered Representative Fined and Suspended for Failing Timely to Respond to NASD Information Requests — NASD settled a matter involving a registered representative who responded untimely to two NASD staff requests for information regarding customer complaints. NASD found that the registered representative's actions violated NASD rules, suspended the representative in all capacities for six months, and fined him $2,500.
Guaranteeing Customer Against Loss
- Registered Representative Fined and Suspended for Guaranteeing a Customer Against Loss — NASD settled a matter involving a registered representative who entered into a written agreement with a public customer in which he guaranteed that, on a date certain, he personally would purchase from the customer nine identified securities in the customer's portfolio at a predetermined price if the price available in the public market did not exceed a certain price. NASD concluded that the representative entered into the agreement in order to induce the customer to continue an existing investment advisor agreement with the representative. NASD found that the registered representative's actions violated NASD rules, suspended the representative in all capacities for 20 calendar days, and fined him $5,000.
Misrepresentations to a Member Firm
- Registered Representative Fined and Suspended for Misrepresenting Information to a Member Firm — The NAC concluded that a registered representative violated his firm's policy against borrowing from customers and misrepresented to his firm that he had not borrowed from customers. The NAC concluded that the representative's conduct contravened high standards of commercial honor and just and equitable principles of trade. The NAC fined the representative $10,000, suspended him in all capacities for nine months, and ordered him to pay appeal costs.
Unauthorized Trading and Misrepresentations to Customers
- Registered Representative Barred for Misrepresenting Material Facts and Effecting Unauthorized Trades in Customer Accounts — The NAC concluded that a registered representative who effected two transactions each in two customer accounts without the customers' knowledge or authorization violated NASD rules. The NAC concluded that, although the customers had discussed the possibility of purchasing the securities at issue with the representative, they had advised the representative that any purchases would be contingent on certain conditions first being satisfied and that the representative completely disregarded the conditions and purchased the securities in the customers' accounts without authorization. The NAC also found that the representative engaged in deceptive and fraudulent conduct when he misrepresented material information regarding the securities at issue to one of the customers. The NAC barred the representative in all capacities.
Unsuitable Recommendations and Misrepresentations to Customers
- Registered Representative Barred and Ordered to Pay Restitution for Misrepresenting Material Facts and Recommending Unsuitable Investments — The NAC concluded that a registered representative misrepresented or omitted material facts about a security with respect to two customers when he: misrepresented that the customers' purchases of the stock would involve an initial public offering, made baseless price predictions regarding the stock, provided the customers with generalized assurances of the stock's success, failed to inform the customers of negative financial information regarding the issuer, and failed to disclose fully the speculative nature of the stock. The NAC also found that the representative recommended an unsuitable investment with respect to one customer. The NAC concluded that the representative had recommended the speculative security of a company that had never generated any revenue and had only experienced losses and that the recommendation was not suitable for his customer in light of her limited income and net worth and her goal of using her investment funds for retirement. The NAC rejected the representative's defense that his customer had ratified the unsuitable transaction because she never complained or instructed the representative to sell her shares. The NAC barred the representative in all capacities and ordered him to pay restitution in excess of $80,000 and appeal costs.