NASD Charges New York Broker Todd M. Eberhard with Numerous Sales and Reporting Violations
Washington, D.C. — NASD announced today that it has charged Todd M. Eberhard, the majority owner of Park South Securities, LLC, with multiple violations of the securities laws and NASD rules. The charges include securities fraud, issuing false account statements, settling customer complaints at three firms where he previously worked without the prior approval of the firms and numerous Central Registration Depository (CRD) reporting violations.
The complaint alleges that during the last several years, Eberhard committed securities fraud in connection with scores of mutual fund transactions. Among other abuses, Eberhard engaged in a pattern of short-term trading of mutual funds and purchasing large volumes of class B mutual fund shares. NASD's review of the accounts revealed patterns of improper short-term trading of mutual funds in order to maximize commissions.
Through large purchases of class B shares, Eberhard kept his customers from taking advantage of the lower sales charges available through different classes of funds. In one customer's account, a mutual fund position was held for just 10 days. In another customer's accounts, despite a $250,000 purchase limit on class B shares imposed by the mutual fund distributor, Eberhard effected total purchases of more than $700,000 of class B shares of the fund.
Many customers eventually complained to Eberhard about the activity in their accounts. Eberhard agreed to settle many of these complaints; however, in 14 instances he did so improperly, without the prior knowledge and consent of his employer brokerage firms. The settlements were often large, with Eberhard agreeing to pay some customers hundreds of thousands of dollars, and in one case, $2 million.
In at least one instance, Eberhard issued statements that included false valuations intended to induce the customer to keep his accounts with Eberhard.
In many instances, Eberhard failed to report the customer complaints and settlements to NASD on the securities industry registration form, Form U-4, thus failing to update the CRD system. In some cases, even when Eberhard filed amendments to his Form U-4, he misrepresented the underlying facts of the customer's complaint and settlement.
Eberhard also entered into a number of written settlement agreements with customers that included improper confidentiality clauses. These provisions effectively prohibited the customers from disclosing the facts of their complaints and the settlement terms to NASD.
Under NASD rules, an individual named in a complaint can file a response and request a hearing before an NASD disciplinary panel. Possible sanctions include a fine, censure, suspension, or bar from the securities industry, in addition to the request made by NASD in the complaint that the respondent give up any ill-gotten gains and pay restitution.
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999 or by sending an e-mail through NASD's Web site at www.nasdr.com.
NASD is the leading private-sector provider of financial regulatory services, dedicated to bringing integrity to the markets and confidence to investors through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit www.nasd.com.