Quarterly Disciplinary Review - Summer Issue/June 2005
The Office of General Counsel of NASD 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 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.
Boiler Room Techniques
- Registered Representative Barred for Employing "Boiler Room" Techniques to Induce Customer Purchases of Securities - NASD settled a matter in which a registered representative, individually and as part of a sales group, employed classic boiler room techniques to induce customer purchases of one security. The registered representative and other members of the sales group shared customer accounts and commissions and fielded customer calls to confuse customers and obscure liability for individual group members. Each member of the sales group fraudulently misrepresented facts to customers, omitted material information about the security, predicted stock price increases, and employed other deceptive practices. NASD found that the representative (and other members of the sales group) violated NASD and SEC rules and barred the representative in all capacities.
Exercising Discretion Without Reducing Authority to Writing
- Registered Representative Suspended and Fined for Placing Discretionary Trades In a Customer Account Without Reducing Customer's Grant of Discretion to Writing - NASD settled a matter in which a registered representative placed 51 discretionary trades in a customer account while the customer was out of town. The customer had granted the representative authority to buy and sell securities in the account while he was away, but the representative had not obtained written evidence of the customer's grant of discretion and had not advised his member firm of the discretion. The representative did not earn any commissions on the discretionary trades. NASD concluded that the representative violated NASD Rules 2110 and 2510, suspended the representative in all capacities for 15 business days, and imposed a $5,000 fine.
Failure to Amend Form U4
- Registered Representative Barred for Willfully Failing to Amend Form U4 to Disclose Tax Lien - NASD settled a matter involving a registered representative who failed to amend his Form U4 to disclose a tax lien that the Internal Revenue Service had filed against him. The representative also failed to respond to NASD staff requests for information regarding his failure to update his Form U4. NASD concluded that the representative, by willfully failing to amend his Form U4, had violated Rule 2110 and IM-1000-1. NASD barred the representative 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 Suspended and Fined for Forging College Administrator's Signature on Intern Agreement - NASD settled a matter involving a registered representative who improperly signed the name of a college administrator to two student intern agreement forms in order to facilitate the college students' participation as interns in a summer program. NASD found that the representative's actions violated Conduct Rule 2110, suspended the registered representative in all capacities for one year, and fined him $5,000.
Misappropriation of Firm Funds
- Registered Representative Barred for Misappropriating Approximately $400 in Firm Funds - NASD settled a matter involving a registered representative who misappropriated approximately $400 that firm customers had contributed to a charity fundraiser. NASD concluded that the representative violated Rule 2110 and barred the representative in all capacities.
Outside Business Activities
- Registered Representative Fined and Suspended for Engaging in a Business Activity for Compensation Away from His Firm - NASD settled a matter involving a registered representative who, while associated with an NASD member, also was employed at a casino. The representative failed to provide prompt written notice of this outside employment to his member firm. NASD held that the representative's actions violated Conduct Rules 2110 and 3030, suspended the representative in all capacities for three months, and fined him $5,000.
- Registered Representative Fined and Suspended for Failing to Provide Prompt Written Notice to Member Firm of Outside Business Activity - NASD settled a matter involving a registered representative who provided financial planning services to approximately 12 members of the public for a fee outside the scope of his relationship with his member firm and failed to provide prompt written notice of this outside business activity to his member firm. NASD found that the representative violated Conduct Rules 2210 and 3030, suspended the representative in all capacities for 30 calendar days, and fined the representative $5,000.
- Registered Representative Suspended, Fined, and Ordered to Pay Restitution for Recommending and Effecting Unsuitable Sale and Purchase of Variable Annuities - NASD settled a matter involving a registered representative who recommended that a customer liquidate a variable annuity that the customer had owned for less than two years and use the proceeds of approximately $100,000 to purchase a different variable annuity. Because the customer liquidated a variable annuity after owning it for less than two years, the customer incurred a penalty of approximately $6,000. NASD found that the representative violated NASD Rules 2110 and 2310 and IM 2310-2 by recommending transactions to the customer without having a reasonable basis for believing that the transactions were suitable. NASD suspended the representative in all capacities for six months, fined the representative $5,000, and ordered the representative to pay restitution to the customer of $6,000.