NASD Hearing Panel Dismisses Profit Sharing Complaint Against Invemed
Washington, D.C. — An NASD hearing panel today dismissed an April 2003 NASD disciplinary complaint against Invemed Associates of New York, which charged Invemed with unlawful profit-sharing activities in late 1999 and early 2000 in connection with "hot" IPO shares it allocated to its customers.
In its complaint, NASD Enforcement alleged that Invemed engaged in improper profit sharing by accepting higher-than-normal commission rates from customers seeking IPO allocations. The complaint also alleged that Invemed violated NASD's corporate finance rules by failing to file information disclosing Invemed's receipt of the inflated rate commission payments and Invemed's profit sharing in its customers' accounts; that Invemed failed to maintain accurate books and records that reflected the shared customers' profits; that Invemed failed to supervise its registered representatives because it failed to follow up on numerous "red flags" of improper profit sharing; and, that Invemed failed to establish, maintain and enforce an adequate supervisory system and written supervisory procedures reasonably designed achieve compliance with applicable federal securities laws and NASD rules regarding allocation of IPO shares, the receipt of commissions and the supervision of employees who allocated IPO shares.
The hearing panel concluded that NASD Enforcement failed to prove that Invemed shared in the profits of its customers' accounts or engaged in conduct that contravened high standards of commercial honor or just and equitable principles of trade. It therefore dismissed the primary charges as well as the related corporate finance rule charge, the books and records charge and the failure to supervise charge, since those charges depended upon an affirmative finding of improper profit sharing. The panel also concluded that NASD Enforcement failed to prove its inadequate supervisory system and procedures allegations, and dismissed that remaining charge as well. Unless the matter is appealed to NASD's National Adjudicatory Council (NAC), or is called for review by the NAC, the hearing panel's decision becomes final after 45 days.
A hearing panel consists of an NASD Hearing Officer and two members of the securities industry. The NAC is a 14-person committee composed of seven industry and seven non-industry members that decides appeals from disciplinary, membership and exemptions decisions, rules on statutory disqualification applications, and advises on other policy matters.
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