Quarterly Disciplinary Review - Fall Issue/September 2002

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).

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 (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.

Exercising Discretion Without Prior Written Authority

Registered Representative Suspended and Fined for Exercising Discretion in Customer Accounts Without Prior Written Authority - NASD settled a matter involving a registered representative's exercising discretion in customer accounts by effecting 18 discretionary transactions without first reducing the customers' authorizations to writing and obtaining acceptance in writing from his member firm. NASD found that the registered representative violated NASD rules and suspended the representative in all capacities for five business days and fined him $5,000.
Registered Representative Suspended and Fined for Exercising Discretion in Customer Account Without Prior Written Authority and Failing to Follow Customer Instructions - NASD settled a matter involving a registered representative's exercising discretion in a customer account by effecting four discretionary transactions without first reducing the customer's authorization to writing and obtaining acceptance in writing from his member firm. The representative also failed to follow customer instructions to place stop-loss orders for all equity positions in a customer's account, resulting in losses to the customer in excess of $300,000. NASD found that the registered representative violated NASD rules and suspended the representative in all capacities for 15 business days and fined him $15,000.

Failure to Respond to NASD Information Requests

Registered Representative Barred for Failing to Produce Certain Documents and Untimely Producing Other Documents in Response to NASD Request for Information - The NAC barred in all capacities a registered representative who failed to respond to an NASD request for certain bank records. The registered representative failed to produce some of the bank records and produced others in an untimely manner. The NAC held that the representative's belated response with respect to some documents and failure to respond with respect to others constituted egregious misconduct. The NAC barred the registered representative in all capacities and assessed costs.

Forgery

Registered Representative Suspended and Fined for Forging a Customer's Signature and Responding Untimely to NASD Request for Information - NASD settled a matter involving a registered representative's forging a customer name and responding untimely to an NASD information request. NASD found that the registered representative signed a customer's name without the customer's knowledge or consent to two agent-change forms for the purpose of changing the broker of record on variable annuities that the customer owned. NASD also found that the representative responded untimely to an information request in connection with NASD staff's investigation of the forgery. NASD suspended the registered representative in all capacities for four months and fined him $7,500.

Misrepresentations on Forms U-4

Registered Representative Suspended and Fined for Material Misrepresentations on Form U-4 - NASD settled a matter involving a registered representative's willfully failing to disclose and misrepresenting material facts on a Form U-4 (Uniform Application for Securities Industry Registration or Transfer). The facts omitted or misrepresented involved regulatory action by other regulators and the respondent's personal and employment history. NASD found that the registered representative's actions violated NASD rules and suspended the representative in all capacities for four months and fined him $7,500. Additionally, since the settlement included a finding that the representative willfully failed to disclose and misrepresented material facts, under the Securities Exchange Act of 1934, the representative may be statutorily disqualified from the industry.
Registered Representative Suspended and Fined for Material Misrepresentations on Form U-4 - NASD settled a matter involving a registered representative's willfully failing to disclose on a Form U-4 (Uniform Application for Securities Industry Registration or Transfer) the material fact that a claimant had commenced an investment-related arbitration proceeding against the registered representative in which the representative was alleged to have engaged in sales practice abuses. NASD found that the registered representative's failure to disclose the arbitration violated NASD rules and suspended the representative in all capacities for nine months and fined him $2,500. 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.

Selling Away

Registered Representative Fined, Suspended, and Ordered to Disgorge Commissions for Selling Away - NASD settled a matter involving a registered representative selling payphones through a lease buyback agreement. NASD concluded that the lease buyback agreements were securities and that the representative had sold the lease buyback agreements without prior written notice to and approval from his employer. NASD suspended the registered representative in all capacities for 12 months, fined him $5,000, and ordered that he disgorge to purchasers more than $19,000 in commissions.
Registered Representative Barred for Selling Away - The SEC upheld NASD's findings and sanctions against a registered representative who participated in others' marketing and sales of promissory notes. The SEC, like the NAC, rejected the representative's argument that he should not be held responsible for the sales, since he was only minimally involved and others actually marketed the notes. The SEC also rejected the representative's contention that he is insulated from responsibility because he had prepared a factually inaccurate disclaimer that stated that the notes were not securities. The SEC affirmed the NAC's imposition of a bar in all capacities and hearing costs.