Quarterly Disciplinary Review - Winter Issue/November 2002
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.
Exercising Discretion without Prior Written Authority
- Registered Representative Suspended and Fined for Exercising Discretion in Customer Account without Prior Written Authority - NASD settled a matter involving a registered representative's exercising discretion in a customer account by effecting 35 transactions without first reducing the customer's authorization to writing and obtaining prior written acceptance from his member firm. NASD found that the registered representative violated NASD rules and suspended the representative in all capacities for 15 business days and fined him $5,000.
Forgery/Falsification of New Account Documents
- Registered Representative Barred for Forging Customer Names to Insurance Policy Change Application Forms - NASD settled a matter involving a registered representative's forging names of more than 50 customers to life insurance policy change application forms without the customers' knowledge or consent. NASD barred the registered representative in all capacities.
- Registered Representative Suspended and Fined for Affixing Customer Name to Account Application and Signature Card - NASD settled a matter involving a registered representative's affixing a customer's name on an account application and signature card, without the customer's knowledge or consent, in an effort to expedite the opening of the customer's account. NASD noted that the misconduct did not occur in connection with the conversion of securities, money, or other items of value and that the customer was not harmed. NASD suspended the registered representative in all capacities for 30 days and fined him $5,000.
Violation of Free-Riding and Withholding Interpretation
- Registered Representative Fined for Violating Free-Riding and Withholding Interpretation - The NAC concluded that a registered representative who had purchased stock for his own account in five initial public offerings that were hot issues violated NASD rules. The NAC rejected the representative's defense that he was exempt from the Free-Riding and Withholding Interpretation because he was associated with a government securities firm. The NAC also rejected as a defense the representative's contention that he was unaware that hot issues had been purchased in his account. The NAC also found that the representative had failed to provide his employer member firm with prior written notice of his establishment of an account at another member firm and that he failed to provide the executing member firm with prior written notice of his association with a member firm. The NAC fined the representative in excess of $9,500 (a fine of $5,000 plus disgorgement of actual profits).
Misrepresentations on Forms U-4
- Registered Representative Suspended and Fined for Material Misrepresentations on Form U-4 - NASD settled a matter involving a registered representative's willfully failing to disclose details regarding the representative's felony aggravated battery charge. Although the representative had answered "yes" to the question of whether he had ever been charged with a felony, he failed to disclose in his Form U-4 Uniform Application for Securities Industry Registration or Transfer details regarding the charge. NASD found that the registered representative's actions violated NASD rules and suspended the representative in all capacities for six months and fined him $5,000. 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 Material Misrepresentations on Form U-4 - NASD settled a matter involving a registered representative's willfully failing to amend his Form U-4 Uniform Application for Securities Industry Registration or Transfer to disclose that he was arrested and charged with the felony of driving while intoxicated and that he subsequently pleaded guilty to the charge and was convicted. NASD found that the registered representative's failure to disclose the arrest and conviction violated NASD rules and suspended the representative in all capacities for six months and fined him $5,000. 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 Unauthorized Use of a Friend/Co-Worker's Credit Card - The SEC upheld the NASD's findings and sanctions against a registered representative who used the credit card number of a friend/co-worker without the co-worker's knowledge or authorization. The SEC, like the NAC, rejected the representative's argument that NASD rules did not apply to his actions, since his use of his co-worker's credit card was not business-related. The SEC also rejected the representative's contention that the existence of a personal relationship between the representative and the co-worker precluded a finding that his conduct was business-related. The SEC noted that NASD's disciplinary authority is broad enough to encompass business-related conduct that does not involve a security and conduct that reflects on the person's ability to comply with the regulatory requirements of the securities industry. The SEC affirmed the NAC's imposition of a bar in all capacities, notwithstanding that the representative had repaid the funds and did not have a disciplinary history.
- Registered Representative Suspended, Fined, Ordered to Pay Restitution, and Required to Requalify for Unsuitable Recommendation to Customer - The NAC found that a representative who recommended that his customer purchase Class B rather than Class A shares in a particular mutual fund family had violated NASD rules. The NAC found that the purchase was unsuitable in that Class A shares with similar investment objectives and performance were available from the same mutual fund family at lower expense to the customer. The NAC noted that the customer would have incurred lower commission costs and could have received breakpoint discounts with Class A shares. The NAC suspended the representative in all capacities for one year, fined him $40,000, ordered that he pay restitution in excess of $50,000, and required that he requalify as a principal.