NASD Fines Former Jesup & Lamont Research Analyst for Trading Contrary to His Own Recommendations
Washington, DC—NASD announced today that it has fined and suspended former Jesup & Lamont Securities Corporation research analyst Gary Davis for trading contrary to the recommendations in his research reports and for other violations relating to his activities as a research analyst. Davis was suspended from the industry for six months, fined $130,000 and prohibited from acting as a research analyst for 18 months. Nearly $117,000 of his fine represents profits Davis made through his unlawful trading.
NASD has also charged Jesup & Lamont, a New York City broker-dealer, and its chief compliance officer, Robert Strong, with failing to adequately supervise Davis.
NASD found that from January 2002 to September 2003, Davis authored 12 research reports with "buy" or "strong buy" recommendations. On 41 separate occasions after these research reports were published, Davis executed sales of shares of companies he covered that were inconsistent with the "buy" or "strong buy" recommendations in his reports. Davis sold a total of 215,657 shares in seven different securities and netted profits of more than $116,500. Those trades were executed in his personal investment accounts at Jesup & Lamont.
"The rules are clear. Analysts may not profit from the recommendations in their research reports," said NASD Vice Chairman Mary L. Schapiro. "Analysts must, at all cost, avoid conflicts of interest when they own and trade securities they cover. In this case, the analyst not only traded in violation of NASD rules - his firm and the analyst's supervisor failed to detect and prevent his illegal trading."
Davis also executed four trades in securities he covered during what is known as the "quiet period" surrounding the publication of research reports. NASD rules prohibit research analysts from buying or selling a security that the analyst is covering for a period beginning 30 days before the research report is issued and continuing for five additional days after the report is published. In addition, Davis also failed to include numerous required disclosures in his research reports - including a disclosure that he had a financial interest in securities covered by his reports.
In settling this matter, Davis neither admitted nor denied the charges, but consented to the entry of NASD's findings.
In a related action, NASD has charged Jesup & Lamont and its chief compliance officer, Robert Strong, for failing to detect and prevent the illegal trading activity by Davis and for other violations relating to research reports published by the firm. Strong was responsible for supervising Jesup & Lamont's research analysts, which included reviewing research reports and the trading activity of research analysts. Despite the fact that Davis's illegal trading activity occurred in his personal accounts at Jesup & Lamont, Strong failed to prevent Davis from trading contrary to the recommendations in his research reports, and failed to prevent him from trading during the "quiet period" surrounding the publication of his research reports. Strong also failed to ensure that the research reports published by Jesup & Lamont included all disclosures required by NASD rules.
Under NASD rules, Jesup & Lamont and Strong may file a response to the charges and request a hearing before an NASD disciplinary panel. Possible remedies include a fine, censure, suspension, and a bar from the securities industry.
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling NASD's BrokerCheck. NASD makes available BrokerCheck at no charge to the public. In 2004, members of the public used this service to conduct more than 3.8 million searches for existing brokers or firms and requested more than 190,000 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 continue to 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 member firms. For more information, please visit our Web site at www.nasd.com.