NASD Fines 29 Firms Over $9.2 Million for Late Reporting
Washington, DC -- NASD announced today that it has censured and fined 29 securities firms over $9.2 million for more than 8,000 late disclosures of reportable information about their brokers – including customer complaints, regulatory actions and criminal charges and convictions.
NASD also prohibited two firms -- Merrill Lynch and Wachovia – from registering new brokers for five business days, in view of the number of their reporting violations in this case and their previous regulatory filing histories. NASD imposed a similar prohibition and a $2.2 million fine against Morgan Stanley in July for late reporting violations.
Under NASD rules, after a securities firm hires a broker, it must ensure that information on the broker’s application for registration (Form U4) is kept current in NASD’s Central Registration Depository (CRD). The firm must update that information whenever significant events occur – including regulatory actions against the broker, customer complaints, settlements involving the broker and criminal charges and convictions. Normally, those updates must be filed within 30 days. If the reportable event involves a statutory disqualification (usually the result of a criminal conviction), the event must be disclosed within 10 days. In addition, firms must notify NASD within 30 days of learning that information disclosed on a termination notice (Form U5) filed for a broker has become inaccurate or incomplete.
Information maintained in CRD on all of the more than 665,000 registered brokers and the nearly 5,300 registered firms is available not only to regulators and law enforcement officials, but to the public through NASD’s BrokerCheck. Last year, more than 2.8 million investors investigated brokers’ backgrounds through BrokerCheck.
“Investors, regulators and others rely heavily on the integrity of the information in the CRD public reporting system – and, in turn, the integrity of that system depends on accurate and prompt reporting by firms,” said NASD Vice Chairman Mary L. Schapiro. “The fact that so many firms failed in their obligation to report so much important information in a timely way is deeply troubling. These firms and others will understand from the severity of the fines and other sanctions in this case that timely reporting of broker information is a fundamental obligation that cannot be neglected or ignored.”
During the period January 2002 through March 2004, each of the 29 firms failed to timely report at least 25 percent of the required disclosures in the areas reviewed by NASD, and some firms failed to timely report over 70 percent. NASD also found that each firm failed to have supervisory systems and procedures in place reasonably designed to achieve compliance with these reporting requirements.
To resolve these actions, each firm agreed to conduct internal audits to evaluate the effectiveness of its system for ensuring compliance with these reporting obligations. In addition, an officer of each firm must certify that such audits have occurred, that recommendations from the audits have been implemented and that the firm has established systems and procedures reasonably designed to achieve compliance with NASD reporting requirements.
The NASD’s action announced today includes the following firms:
|Firm Name||Fine||No. of Late Disclosures||Failure Rate in Examined Areas|
|Merrill Lynch, Pierce, Fenner & Smith, Inc.||$1,600,000||1,420||30%|
|American Express Financial Advisors, Inc.||$700,000||770||44%|
|Wachovia Securities LLC||$650,000||610||32%|
|Prudential Equity Group, LLC||$550,000||490||27%|
|LINSCO/Private Ledger Corp.||$450,000||390||71%|
|PFS Investments, Inc.||$450,000||390||64%|
|Raymond James Financial Services, Inc.||$400,000||350||60%|
|Metropolitan Life Insurance Co.||$375,000||340||62%|
|NYLife Securities, Inc.||$350,000||350||45%|
|WM Financial Services, Inc.||$350,000||270||55%|
|Edward Jones & Co., LP||$300,000||280||27%|
|Chase Investment Services Corp.||$250,000||230||25%|
|AXA Advisors, LLC||$250,000||210||31%|
|MML Investor Services, Inc.||$250,000||220||69%|
|Banc of America Investment Services, Inc.||$200,000||170||56%|
|ING Financial Partners, Inc.||$200,000||160||77%|
|New England Securities||$200,000||180||57%|
|J.P. Turner & Company, L.L.C.||$185,000||140||62%|
|Financial Network Investment Corp.||$185,000||130||74%|
|Allstate Financial Services, LLC||$150,000||130||44%|
|RBC Dain Rauscher, Inc.||$150,000||140||35%|
|Wells Fargo Investments, LLC||$150,000||140||35%|
|World Group Securities, Inc.||$150,000||140||61%|
|Farmers Financial Solutions, LLC||$125,000||100||66%|
|Jefferson Pilot Securities Corporation||$125,000||110||48%|
|J.J.B. Hilliard, W.L. Lyons, Inc.||$125,000||120||62%|
|Quick & Reilly, Inc.||$125,000||120||51%|
|SunAmerica Securities, Inc.||$100,000||95||33%|
In settling with NASD, the firms neither admitted nor denied the allegations, but consented to the entry of NASD's findings.
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm through 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 2.8 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 the program by going online to www.nasdbrokercheck.com. Investors can also access this service by calling (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.