Quarterly Disciplinary Review - Winter Issue/December 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.
Baseless Electronic Complaints
- Registered Representative Suspended and Fined for Filing Baseless Electronic Complaints about Former Customer's New Investment Advisor on NASD and SEC Websites - NASD settled a matter involving a registered representative who filed baseless electronic complaints against a former customer's new investment advisor. The registered representative was the broker of record for two accounts belonging to one customer valued at nearly $3 million. The customer liquidated his accounts, transferred his money away from the representative's firm, and retained a registered investment advisor to handle his money. The registered representative thereafter filed an anonymous and baseless complaint against the investment advisor on NASD's Web site. The registered representative also filed a baseless complaint on the SEC's Web site and falsely identified himself as the customer. NASD concluded that the representative's conduct violated NASD Rule 2110, fined the representative $5,000, and suspended him in all capacities for 60 days.
Borrowing Customer Funds
- Registered Representative Suspended and Fined for Borrowing Customer Funds in Violation of Firm Procedures and NASD Rules - NASD settled a matter involving a registered representative who borrowed $5,000 from a customer who was not a member of the registered representative's immediate family and was not in the business of lending money. The written procedures of the representative's firm prohibited representatives from borrowing money from customers. NASD concluded that the representative's conduct violated NASD Rules 2110 and 2370. NASD fined the representative $5,000 and suspended him in all capacities for 20 business days.
Drafting and Distributing Research Report that Did Not Comply with NASD Rules
- Registered Representative Fined for Drafting and Distributing a Research Report that Failed to Comply with NASD's Rules - NASD settled a matter involving a registered representative who drafted and distributed through his member firm one research report that failed to comply with NASD's rules. The research report failed to include certain disclosure requirements, including the meaning of the ratings used in the report and the distribution of ratings by the member firm. NASD held that the representative's actions violated NASD Rules 2110 and 2711 and fined him $5,000.
Facilitating Market Timing
- Registered Representative Suspended and Fined for Facilitating Client's Market Timing Through Sub-Accounts of Variable Annuities - NASD settled a matter involving a registered representative who assisted his client's market timing activities by enabling the client to avoid insurance company efforts to limit market timing. Through the representative, a client purchased variable annuities from two insurance companies for hedge funds that it managed. The client systematically market timed sub-accounts of the variable annuities by instructing the insurance company to transfer funds from one sub-account to another. The representative facilitated his client's market timing by opening new accounts using purportedly different hedge funds, naming different annuitants, and purchasing smaller contracts. NASD concluded that the representative's conduct violated NASD Conduct Rule 2110. NASD fined the representative $40,000 and suspended him in all capacities for six months.
Falsification of Documents
- Registered Representative Barred for Falsifying Documents by Affixing Customer Signatures on Documents Without the Customers' Knowledge or Consent - NASD settled a matter involving a registered representative who falsified documents by affixing the signatures of five customers on documents without the customers' knowledge or consent. The documents purported to acknowledge that the customers had received financial plans on fictitious dates. Although the customers had paid for the financial plans, they had not received them. NASD concluded that the registered representative's conduct violated NASD Rule 2110 and barred the representative in all capacities.
Misusing Branch Manager's Funds
- Registered Representative Barred for Misusing Branch Manager's Business Account Funds - NASD settled a matter involving a registered representative who misused more than $20,000 belonging to his branch manager's business accounts without the branch manager's knowledge, authorization or consent. NASD found that the registered representative violated NASD Rule 2110 and barred him in all capacities.
Settling Customer Complaint without Firm Approval or Authority
- Registered Representative Fined and Suspended for Settling a Customer Complaint Without the Approval of or Authority from his Firm - NASD settled a matter involving a registered representative who settled a customer complaint by convincing another registered person at the firm to pay the customer a sum of money without first obtaining firm approval of the settlement and without firm authority to settle the matter. NASD found that the representative violated Conduct Rule 2110, fined the representative $5,000, and suspended him in all capacities for six months.