Quarterly Disciplinary Review - Fall Issue/September 2006
The Office of General Counsel of NASD Regulatory Policy and Oversight (OGC) 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 (National Adjudicatory Council (NAC) decisions and decisions of the Securities and Exchange Commission 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 may result in disciplinary action. This document is not intended to replace or supplement the disciplinary information and decisions contained on NASD's web site (www.finra.org). 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 they should periodically 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. Additional information about obtaining a CRD Individual Snapshot is available at www.finra.org/qualifications.asp.
Borrowing Funds from a Customer
- Registered Representative Barred for Borrowing Money from a Customer Without the Ability to Repay the Money - NASD settled a matter involving a registered representative who borrowed $50,000 from a customer. The representative's member firm prohibited registered persons from borrowing money from customers. The registered representative obtained the customer's signature on a check for $50,000 drawn on the customer's checking account and payable to the representative's wife. The representative negotiated a loan-repayment schedule that he was unable to keep. The representative did not have the means to repay the loan when he borrowed the funds and has repaid only $10,000. NASD concluded that, by borrowing money from a customer that he was unable to repay, the representative misused customer funds and violated NASD Rules 2110 and 2330. NASD barred the representative in all capacities.
Excessive Trading and Exercising Discretion Without Written Authority
- Registered Representative Suspended, Fined and Ordered to Pay Restitution for Excessive Trading and Exercising Discretion in a Customer Account Without Written Authority - NASD settled a matter involving a registered representative who exercised discretion in a customer's account without obtaining the customer's prior written authorization, and engaged in unsuitable and excessive trading in the customer's account. NASD concluded that the representative violated Conduct Rules 2110, 2310 and 2510. NASD fined the representative $9,000, suspended him in all capacities for 30 calendar days, and ordered him to pay the customer restitution of $16,000.
Failure to Appear for On-The-Record Interview
- Registered Representative Barred for Refusing to Appear for an NASD On-The-Record Interview - NASD settled a matter involving a registered representative who refused to appear before NASD for an on-the-record interview in connection with an investigation of the representative's alleged commission payment to another individual. NASD concluded that the representative violated Rules 2110 and 8210, and barred the representative in all capacities.
Falsification of Firm's Internal Records
- Registered Representative Fined and Suspended for Falsifying Charges and Dates on Exchange/Transfer Transmittal Form for Fixed Annuity - NASD settled a matter involving a registered representative who intentionally falsified the holding period, contract date and surrender charges on an Exchange/Transfer Transmittal Form that the member firm used to review exchanges from one fixed annuity to another. NASD held that the representative's actions violated Conduct Rule 2110, and suspended the representative in all capacities for nine months and fined him $5,000.
Forgery of Another Registered Representative's Signature
- Registered Representative Barred for Signing Another Registered Representative's Name to New Account Forms - NASD settled a matter involving a registered representative who signed new account forms with the purported signature of another registered representative at the firm. The representative thereafter provided inaccurate and incomplete testimony in an on-the-record interview with NASD staff. The representative subsequently corrected the inaccurate testimony in a second interview. NASD held that the representative violated Conduct Rules 2110 and 8210, and barred the representative in all capacities.
Forgery of Customer Signature
- Registered Representative Fined and Suspended for Forging Customer Signature - NASD settled a matter involving a registered representative who had obtained a customer's signature on an insurance document in order to effect a policy change. The representative later realized that the customer had signed the wrong form and, in an effort not to inconvenience the pregnant customer, the representative signed the customer's name to the correct form without the customer's knowledge or consent. The representative did not receive any benefit from the forgery and the customer was not harmed. NASD concluded that the representative's conduct violated Rule 2110, and suspended the representative for 60 calendar days and fined the representative $5,000. Short Sale Violations " Registered Representative Suspended, Fined and Ordered to Disgorge Unlawful Profits for Violating Short Sale Rules - NASD settled a matter involving a registered representative who executed 100 short sale orders in his personal accounts at the member firm with which he was associated and failed to: properly mark the order tickets as short; make an affirmative determination that he would receive delivery of the securities or that he could borrow the securities for delivery by the settlement date; and ensure that his firm reported each transaction to the NASDAQ Market Center with a short sale modifier. Additionally, the registered representative effected the short sales by intentionally circumventing the locate requirements of his firm's trading systems. NASD concluded that the representative's conduct violated Rule 2110, and suspended him in all capacities for three months, fined him more than $100,000 and required that he disgorge unlawful profits from incorrectly marked short sales in excess of $290,000.
Unauthorized Purchase of Mutual Fund Shares
- Registered Representative Fined and Suspended for One Unauthorized Purchase of Mutual Fund Shares - NASD settled a matter involving a registered representative who purchased approximately $3,000 of mutual fund A shares in a customer account without the customer's prior knowledge or consent. NASD concluded that the representative's conduct violated Rule 2110, and suspended the representative in all capacities for 10 business days and fined the representative $5,000.
Violation of NASD Suspension Order
- Registered Representative Suspended, Finedand Barred as a Principal for Violating an NASD Suspension Order - NASD settled a matter involving a registered representative who was the subject of an NASD Hearing Panel decision. In 2003, an NASD Hearing Panel suspended the representative for 10 days and imposed a fine. During the period of the suspension, the representative performed work-related duties on the premises of his member firm, communicated with other firm employees regarding work-related matters, met with the firm's customers and solicited business from them. NASD found that, by violating the 10-day suspension, the representative violated Conduct Rule 2110. NASD suspended the representative for six months in all capacities, fined him $40,000 and barred him in all principal and supervisory capacities.