NASD Regulation Fines First Union Securities, Inc. $350,000 and Fines and Suspends Former Executives for Books and Records and Supervisory Violations Arising from Payments to Armacon Securities, Inc.
Nancy A. Condon
Barry R. Goldsmith
Washington, D.C.—NASD Regulation, Inc., announced today a settlement in which it fined First Union Securities, Inc., $350,000 for books and records violations and supervisory violations arising from inaccurately recorded municipal securities payments made to Armacon Securities, Inc. Three former senior executives of the firm were also suspended and fined a total of $125,000. The conduct described in the settlement took place at Wheat First Securities, Inc., prior to its 1998 acquisition by First Union.
NASD Regulation found that Wheat’s books and records failed to reflect accurately approximately $1.5 million of payments made to Armacon for more than 30 municipal securities transactions from late 1991 through April 1993. During that time period, Nicholas A. Rudi, then owner of the now-defunct Armacon, directed many New Jersey municipal securities transactions to Wheat. After Wheat paid a finders fee to Armacon for three New Jersey State municipal transactions, Rudi told Wheat that he did not want to receive checks in the future for state transactions because they could be embarrassing in light of his previous business relationship with the chief-of-staff to the Governor of New Jersey. As a result, Armacon did not bill Wheat, and Wheat did not record its liability to Armacon, for numerous New Jersey state transactions Armacon directed to Wheat. Instead, Wheat paid Armacon extra amounts for several local municipal transactions to make up for the finder’s fees not billed. As a result, Wheat’s books and records failed to reflect payments to Armacon on numerous municipal securities transactions, and overstated the amount that was owed and paid to Armacon for others.
Wheat also authorized a third-party broker to make payments to Armacon to reduce Wheat’s outstanding balance to Armacon. Those payments reduced amounts owed by Wheat to Armacon for other transactions without recording the amounts paid to Armacon on the firm’s books and records. Wheat also paid and reflected in its books and records "management fees" to Armacon for five Pennsylvania transactions where Armacon provided no underwriting or distribution services. These fees were paid in lieu of finder’s fees payments to Armacon for help in referring to Wheat specific New Jersey municipal securities offerings.
Pursuant to the settlement, First Union, as successor to Wheat, was charged with violating the supervisory provisions of the Municipal Securities Rulemaking Board (MSRB) and the recordkeeping provisions of the federal securities law and the MSRB, and was fined $350,000. James Losty, the former head of Wheat First’s Public Finance Group, was charged with causing violations of the recordkeeping provisions of the MSRB and was fined $50,000 and suspended for 30 days. NASD Regulation previously entered into a related settlement with Thomas Zoidis, former head of Wheat First’s Municipal Department, in which Zoidis was charged with violating the supervisory provisions of the MSRB and was fined $50,000 and suspended from acting in a supervisory capacity for 30 days. Mark Gambill, the former President of Wheat First was charged with violating the supervisory provisions of the MSRB and was fined $25,000 and suspended from acting in a supervisory capacity for 15 days.
In settling this matter, First Union, Losty, Zoidis, and Gambill neither admitted nor denied NASD Regulation’s findings.
Investors can obtain more information about NASD Regulation as well as the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999.
NASD Regulation oversees all U.S. stockbrokers and brokerage firms. NASD Regulation, Inc., The Nasdaq Stock Market, Inc., and the American Stock Exchange® are subsidiaries of the National Association of Securities Dealers, the largest securities-industry self-regulatory organization in the United States.