NASD Fines Municipal Securities Dealer and its President $100,000 for Failing to Report Gubernatorial and Other Political Contributions
Washington, DC — NASD announced today that it has censured and fined Berean Capital Incorporated of Chicago and its president, Dudley Brown, Jr., $100,000 for failing to disclose political contributions Brown made to city and state officials in Illinois and elsewhere while Berean Capital was acting as a municipal securities dealer. The firm was also cited for numerous reporting, disclosure and research violations.
MSRB Rule G-37 requires all dealers to disclose certain political contributions, as well as other information, to allow public scrutiny of political contributions and the municipal securities business of a dealer. Dealers are to disclose, with some limited exceptions, contributions to state and city officials with responsibility for issuing municipal debt and payments to political parties made by the dealer and certain persons employed by the dealer. Contributions to these officials by firms or their municipal finance professionals trigger a two-year prohibition on most future municipal business. NASD is responsible for enforcing the rules of the Municipal Securities Rulemaking Board (MSRB).
NASD found that Brown made three political contributions to Illinois Governor Rod Blagojevich. The first two were made during then-Congressman Blagojevich's gubernatorial campaign in 2002. Brown made another contribution to Blagojevich in July 2003, following Blagojevich's election as governor. The total amount of the contributions was $12,000. Brown also made a $2,500 political contribution to Joan Pratt, Comptroller of the City of Baltimore in August 2003. None of these contributions was disclosed until after NASD discovered them and instructed the firm to report them.
Berean Capital also violated MSRB Rule G-37 by engaging in a municipal securities business with an issuer within the two-year prohibited period after a political contribution to an issuer official. In this instance, a $500 contribution was made by one of the firm's municipal finance professionals to Darlene Green, Comptroller for the City of St. Louis and head of the Department of Finance that directs the city's debt financing. Approximately 21 months later, Berean Capital entered into municipal securities business with the City of St. Louis that involved purchasing $50 million of the city's Tax and Revenue Anticipation Notes in June 2003, as lead underwriter in a negotiated offering.
NASD found other MSRB reporting and disclosure failures by Berean Capital. The firm failed to disclose its participation in a City of Chicago-negotiated municipal underwriting for the quarter ended Sept. 30, 2002. When an amended MSRB Form G-37/38 was filed disclosing the underwriting, the form was filed 78 days late. In addition, Berean Capital failed to include the time of execution on order memoranda for inter-dealer municipal securities transactions, as required by MSRB Rule G-8.
NASD also found violations by Berean Capital relating to its general securities business. Specifically, the firm violated NASD's research analyst rule by publishing 20 research reports between February 2003 and February 2004 that failed to include numerous required disclosures. For example, the research reports failed to include the meaning and distribution of ratings, current information of the firm's distribution of ratings, valuation methods used to determine price targets, and statements that the firm was a market maker of companies that were the subject of the published research. The firm also failed to present its disclosures prominently, as required by Rule 2711.
In settling this matter, Berean Capital and Dudley Brown, Jr. neither admitted nor denied the charges, but consented to the entry of NASD's findings.
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