NASD Charges Continental Broker-Dealer Corp. and its Executives with Sales Practice and Supervision Violations
Washington, DC — NASD announced today that it had filed a complaint against Continental Broker-Dealer Corp. of Carle Place, New York for widespread violations of securities laws, including allowing Gregory M. Hasho to be its "de facto" owner and operator despite his previous SEC bar that prevented him from holding a supervisory and proprietary position in any securities firm. The NASD complaint also charged a former Continental registered representative, Rahman Rose, with executing numerous unsuitable, excessive and fraudulent securities transactions involving high levels of margin and failing to appear for NASD testimony.
NASD also announced it had settled disciplinary actions with ten former employees of Continental.
NASD's investigation revealed Continental, at Hasho's direction, devised an unsuitable options trading strategy designed to generate commissions from customers. The promotion of this strategy, along with the lapse in proper supervision by the firm, resulted in widespread and egregious sales practice abuses by Rose and several other Continental registered representatives. The sales practice violations included unsuitable and excessive trading in customer accounts and the excessive use of margin. As a result of this violative conduct, many customers lost most or all of their principal investments, resulting in approximately $5 million in losses, while the firm and its registered representatives reaped commissions in excess of $5.3 million.
Continental had no enforced supervisory structure in place and therefore failed to ensure that designated principals performed their supervisory duties, NASD charged in the complaint. This lack of supervision and compliance with NASD rules and federal securities laws pervaded the firm and enabled Hasho to run Continental from 2000 to 2003 even though the SEC had barred him from acting as a supervisor in 1995. NASD's investigation revealed that Hasho actively managed and supervised Continental by participating in firm management decisions, directing substantial payments from Continental's bank accounts to third parties and by reviewing customer accounts.
Continental also failed to have its 2001 and 2002 annual audits performed by an independent public accountant, as required by NASD rules. The auditing firm's accountant was not independent because he had an outstanding $500,000 personal loan from Continental. In addition, to conceal the existence of that loan, Continental employees posted false entries in its general ledger and filed false financial reports with the SEC and NASD.
NASD also settled five disciplinary actions against Continental's former President, Thomas Tiernan; Chief Compliance Officer, Dominick Bianco; Chief Financial Officer, Leon Fintz; Registered Options Principal, Regan Tegge and the New Jersey Office Branch Manager, Thomas Francis.
Tiernan, Bianco, Tegge and Francis were charged with failing to supervise registered representatives in connection with unsuitable and excessive trading in customer accounts. Fintz was charged as a result of his involvement with the improper loan to Continental's outside auditor, and his participation in the posting of false accounting entries in the firm's books and records and in reports filed with the SEC and NASD. Tiernan, Francis and Fintz were barred from the securities industry in all capacities; Bianco was barred from acting in a principal capacity and fined $30,000; and Tegge was suspended in a principal capacity for one year, fined $20,000 and ordered to requalify prior to returning to the securities industry.
NASD has also settled disciplinary actions with five former Continental registered representatives and received a default decision against a sixth registered representative after filing a complaint. All six were charged with engaging in unsuitable recommendations, excessive trading in customer accounts and excessive use of margin:
- Joseph Mucci, George Difuilo and Daren Deluca each received a six-month suspension.
- Mario Forte received a five-month suspension.
- Leonardo Balzano received a ten-month suspension.
- Kenneth Rodgers was barred from association with a member firm in any capacity.
Under NASD rules, an individual or firm charged in a complaint can file a response and request a hearing before an NASD disciplinary panel. Possible sanctions include a fine, censure, suspension, expulsion, or bar from the securities industry, in addition to the request made by NASD in the complaint that the respondents give up any ill-gotten gains and pay restitution.
All individuals involved in settlements relating to this case agreed to the sanctions while neither admitting nor denying the allegations.
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.nasd.com.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity 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 our Web site at www.nasd.com.