Spring Issue/March 2006
The Office of General Counsel (OGC) of NASD Regulatory Policy and Oversight publishes the Disciplinary Update to provide registered representatives with a summary sampling of recent disciplinary actions involving misconduct by registered representatives. The sample of disciplinary actions includes settled matters and decisions in litigated cases (Hearing Panel and National Adjudicatory Council (NAC) decisions and decisions of the Securities and Exchange Commission (SEC) in NASD cases).
OGC chose the particular actions summarized below to call attention to, and remind registered representatives of, specific conduct that violates NASD rules and will result in disciplinary action. This document is not intended to replace or supplement the disciplinary information and decisions contained on the NASD Web site. The decisions and settlements referenced in this document are subject to the restrictions regarding the release of disciplinary information contained in IM-8310-2 in the NASD Manual.
OGC reminds registered representatives that periodically they should review their Central Registration Depository (CRD) information to check that it is current. Every registered representative can review his own CRD information by requesting a copy of his "Individual Snapshot" from NASD. Requests must be in writing and must include the representative's name, home address, social security number or CRD number, and signature. Requests may be sent via facsimile to (301) 216-2716 or via first class mail to: Research (Snapshot), 9509 Key West Avenue, Rockville, Maryland 20850, Attn: Research.
Erroneous Payment of a Referral Fee and Improper Communications With Clients on Personal Computer
- Registered Representative Censured and Fined for Paying a Referral Fee to an Unregistered Person and Communicating with Customers from His Personal Computer - NASD settled a matter involving a registered representative who paid a referral fee to an unregistered person. The representative had received a referral to a prospective customer from an accountant. The customer subsequently purchased a variable annuity from the representative, and the representative paid the accountant approximately half of his production credit as a referral fee. The representative also communicated electronically regarding his securities business with customers on his personal computer at his home without providing notice to his firm. NASD concluded that the representative's conduct violated NASD Rule 2110, censured the representative, and fined him $10,000.
Altering Proctor's Report at a Test Center
- Registered Representative Suspended and Fined for Altering a Proctor's Notes at an NASD Test Center - NASD settled a matter involving a registered representative who altered the information contained on a proctor's report at an NASD testing center. The representative earned a failing score of 43% on a qualifications examination. The representative subsequently altered the proctor's report to reflect that he had received a 65% and presented the altered report to his member firm. The altered report, while still indicating that the representative had failed the qualifications examination, indicated that he had earned a higher score than he in fact had received. NASD found that the representative's conduct violated Conduct Rule 2110, fined the representative $5,000, and suspended him in all capacities for six weeks.
Failure to Amend Form U4
- Registered Representative Fined and Suspended for Willfully Failing to Amend Form U4 to Disclose a Felony Charge For Two and One-Half Months - NASD settled a matter involving a registered representative who failed to amend his Form U4 to disclose a charge of one count of larceny involving more than $250. The representative allowed two and one-half months to elapse before updating his Form U4 to disclose the felony charge. NASD concluded that the representative, by willfully failing to amend his Form U4, had violated Rule 2110 and IM-1000-1. NASD suspended the representative for three months in all capacities and fined him $5,000. Additionally, since the settlement included a finding that the representative willfully failed to disclose material facts, under the Securities Exchange Act of 1934, the representative may be statutorily disqualified from the industry.
Failure to Respond to NASD Requests for Information
- Registered Representative Barred for Failing to Respond to Three NASD Letter Requests for Information - NASD settled a matter involving a registered representative who failed to respond to three NASD letters requesting information regarding the representative's termination by a member firm. NASD concluded that the representative's conduct violated NASD Conduct Rule 2110 and Procedural Rule 8210 and barred the representative in all capacities.
Falsification of Documents
- Registered Representative Fined and Suspended for Falsifying Information on Mutual Fund Forms - NASD settled a matter involving a registered representative who included false information on mutual fund-related documentation. The representative had recommended that a customer sell certain mutual funds and purchase others. The representative falsely stated on order memoranda that the mutual fund purchases were unsolicited. The representative also placed a false date on a mutual fund switch form that the customer had signed to falsely indicate that the customer had signed the form at the time of the transactions. NASD concluded that the registered representative's conduct violated NASD Rule 2110, fined the representative $5,000, and suspended him in all capacities for 60 days.
Misrepresenting Customers' Disabilities to Mutual Fund Companies
- Registered Representative Barred for Misrepresenting Customers' Disabilities to Mutual Fund Companies - NASD settled a matter involving a registered representative who misrepresented to mutual fund companies that several of his customers were disabled and, based on the misrepresentations, obtained waivers of contingent deferred sales charges (CDSC) (the sales charges that mutual fund companies impose on investors who sell or redeem Class B shares within a certain period after their purchase). By misrepresenting the customers' disabilities, the representative was able to obtain CDSC waivers to which the customers were not entitled on approximately 15 redemptions. NASD concluded that the representative's actions deprived the mutual fund companies of funds to which they were entitled, and caused the firm's books and records to contain false information. NASD found that the registered representative violated NASD Rules 2110 and 2510 and barred him in all capacities.
Outside Business Activities
- Registered Representative Barred for Engaging in a Business Activity for Compensation Away from His Firm - NASD settled a matter involving a registered representative who, while associated with an NASD member, also sold automobile financing contracts for compensation to members of the public. The representative failed to provide prompt written notice of this outside engagement to his member firm. NASD held that the representative's actions violated Conduct Rules 2110 and 3030 and barred the representative.
Settling Customer Complaint without Firm Approval or Authority
- Registered Representative Fined and Suspended for Settling a Customer Complaint Without Informing and Obtaining Approval from his Firm - NASD settled a matter involving a registered representative who paid two customers from personal funds to settle two verbal complaints. The representative failed to advise the firm of the complaints and settlements, and did not obtain the firm's approval of the settlements. NASD found that the representative violated Conduct Rule 2110, fined the representative $5,000, and suspended him in all capacities for three months.