Quarterly Disciplinary Review - Winter Issue/December 2006
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.
Affixing Signatures of Customer and an Associated Person to Insurance Forms
- Registered Representative Suspended and Fined for Affixing the Signatures of a Customer and an Associated Person to Insurance Forms in Contravention of Firm Policy – NASD settled a matter involving a registered representative who signed the signatures of a customer and an associated person to insurance forms. The customer and associated person had granted the representative permission to sign their names, but the procedures of the representative’s firm prohibited representatives from signing any other person’s name. NASD concluded that the representative’s conduct violated Conduct Rule 2110, suspended the representative in all capacities for 60 days and fined him $5,000.
Borrowing Funds from a Customer
- Registered Representative Suspended and Fined for Borrowing Money from Customers in Violation of Member Firm’s Policies and Failing to Repay Customers – NASD settled a matter involving a registered representative who borrowed $5,000 from customers. The representative entered into a promissory note with the customers and agreed to pay them a 4 percent rate of return. The representative did not repay the customers in accordance with the terms of the promissory note, and the member firm repaid the customers. The representative’s member firm prohibited registered representatives from borrowing money from customers. NASD concluded that the representative violated NASD Rules 2110 and 2370, suspended the representative for 90 days and fined the representative $5,000.
Failure to Appear for Testimony Before NASD
- Registered Representative Barred for Refusing to Appear to Testify Before NASD – NASD settled a matter involving a registered representative who refused to appear to testify in connection with an ongoing NASD investigation of trading activity. NASD found that the representative violated Rules 2110 and 8210 and barred the representative.
Failure to Comply With Research Analyst/Research Report Rule
- Registered Representative Suspended and Fined for Trading In Contravention of NASD’s Research Analyst/Research Report Rule – NASD settled a matter involving a registered representative who violated NASD’s restrictions against trading during the period before and after the issuance of a research report when members of his household effected purchases or sales of securities covered in his research reports on ten occasions in their personal accounts. The registered representative also violated NASD’s rule when he personally sold stock in a manner inconsistent with the recommendation reflected in his most recent research report and failed to disclose that a member of his household owned shares of covered securities. The representative also failed to notify his member firm of accounts that he held at other brokerage firms. NASD found that the representative violated Conduct Rules 2110, 2711 and 3050, fined the representative $30,000 and suspended him in all capacities for 30 calendar days.
Failure to Update Form U4 and Appear for On-the-Record Testimony
- Registered Representative Barred for Failing to Update His Form U4 and Refusing to Appear for NASD On-The-Record Interview – NASD settled a matter involving a registered representative who failed to update his Form U4 to reflect that he had been charged with felony possession of a controlled substance. The representative thereafter refused to appear before NASD for an on-the-record interview in connection with an investigation of the matter. NASD concluded that the representative violated Rules 2110 and 8210 and barred the representative in all capacities.
Improper Use of Web CRD
- Registered Representative Fined and Suspended for Failing to Obtain the Required Written Consent in Connection with a Web CRD Search – NASD settled a matter involving a registered representative who failed to obtain the required written consent for a Web CRD search of more than 100 individuals. The representative conducted the searches to identify the member firms with which high-producing individuals were associated and not because the representative’s firm was considering hiring the individuals. NASD concluded that the representative’s actions violated Conduct Rule 2110, suspended the representative in all capacities for three months and fined him $10,000.
Misuse of Non-Customer Funds
- Registered Representative Barred for Misusing Non-Customer Funds – NASD settled a matter involving a registered representative who, while associated with an NASD member firm, was also employed in a related field. As a result of the representative’s outside employment, the representative had access to funds not belonging to him. The representative misappropriated $750 and used the funds for his own benefit. NASD concluded that the representative’s conduct, although unrelated to a firm customer, violated Rule 2110 and barred the representative in all capacities.
Private Securities Transactions
- Registered Representative Barred for Private Securities Transactions – The NAC issued a decision involving a registered representative who participated in the offer and sale of promissory notes, for compensation, to 25 customers without prior written notice to, and written approval of, his member firm. The NAC concluded that the representative’s conduct violated Conduct Rules 2110 and 3040. The NAC found several aggravating factors, including that the representative’s private securities transactions involved 25 firm customers, resulted in the representative’s monetary gain, exposed customers to substantial harm and extended over a two-year period. The NAC barred the representative from associating with any member firm in any capacity.
Settling With Customer Away From Member Firm
- Registered Representative Fined and Suspended for Settling Securities-Related Customer Complaint Without Notifying His Member Firm and for Providing False Information About the Complaint to His Member Firm – NASD settled a matter involving a registered representative who settled securities-related customer complaints against him without notifying his member firm. The representative thereafter provided his member firm with false information about the customer complaints. NASD concluded that the representative’s actions violated Conduct Rule 2110, suspended the representative for 20 business days and fined the representative $10,000.