NASD Expels Continental Broker-Dealer Corp. for Sales Practice, Supervision Violations
Washington, D.C.—NASD announced today that Continental Broker-Dealer Corp. of Carle Place, NY has been expelled from the securities industry for a wide range of securities violations - including sales practice abuses, supervisory failures, registration violations, auditor independence violations, books and records falsification and making false filings to the Securities and Exchange Commission (SEC) and to NASD.
Continental is also being required to establish an escrow account to pay partial restitution to customers known to have been victimized by the firm's sales practice abuses and to satisfy other customer complaints, arbitration claims, civil judgments and regulatory enforcement proceedings.
In addition, Gregory M. Hasho, Continental's de facto owner and operator during the relevant period (2000 to 2003), has been barred from association with any NASD regulated firm. Hasho was also ordered to sell his ownership interest in Continental.
The settlements announced today also resolve charges against four former Continental brokers - one of whom has been barred from the securities industry, while the three others have been suspended. Three are being required to pay restitution to victims of their sales practice abuses.
In its September 2003 complaint against Continental, NASD charged the firm with widespread violations of securities laws, including allowing Hasho to be its de facto owner and operator despite a previous SEC order that barred him from holding a supervisory or proprietary position in any securities firm.
NASD's investigation revealed that Continental, at Hasho's direction, devised an unsuitable options trading strategy designed to generate excessive commissions from customers. The promotion of this strategy, along with the lapse in proper supervision by the firm, resulted in pervasive and egregious sales practice abuses by numerous Continental brokers. The sales practice violations included unsuitable and excessive trading in customer accounts and the excessive use of margin. As a result, many customers lost most or all of their original investments, resulting in approximately $5 million in total losses, while the firm and its registered representatives reaped commissions in excess of $5.3 million.
NASD found that Continental failed to ensure that designated principals performed their supervisory duties to prevent these activities. In fact, NASD found that some of the principals who were responsible for preventing such abuses were instead promoting and permitting the improper trading by the firm's representatives.
This pervasive lack of supervision and compliance with NASD rules and federal securities laws enabled Hasho to run Continental from 2000 to 2003, even though the SEC had barred him in 1995 from acting as a supervisor and from having a proprietary interest in the firm. The SEC had given Hasho the right to reapply for those rights after three years; in 1999, Continental filed an application on Hasho's behalf with NASD. But NASD's National Adjudicatory Council rejected that application, citing Continental's disciplinary history and the absence of an adequate structure at the firm to supervise Hasho's activities. Nevertheless, 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 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. To conceal the existence of that loan, Continental employees posted false entries in the firm's general ledger and filed false financial reports with the SEC and NASD.
NASD, which previously announced actions against 12 other Continental executives and brokers (see NASD Press Release dated October 9, 2003, http://www.nasdr.com/news/pr2003/release_03_041.html), also announced today that it has settled disciplinary actions with the following four Continental registered representatives who were charged with engaging in unsuitable recommendations, excessive trading in customer accounts and excessive use of margin:
- Rahman Rose was permanently barred from the securities industry.
- Alan Frankel was suspended for one year, fined $15,000 and ordered to pay $135,417 in restitution to customers.
- Daniel M. Spalango, Jr. was suspended for six months, fined $10,000 and ordered to pay $38,067 in restitution.
- Gabriel F. Migliano, Jr., was suspended for one month, fined $5,000 and ordered to pay restitution in the amount of $22,508.
Continental and 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 about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2003, members of the public used this service to conduct more than 2.5 million searches for existing brokers or firms and requested almost 180,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com. Investors can also access this service by calling 1-800-289-9999.
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 registered firms. For more information, please visit our Web Site at www.nasd.com.