Quarterly Disciplinary Review - Fall Issue/September 2003

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.

Failure to Respond to Request for Information

Registered Representative Barred for Failing to Respond to NASD Requests for Information and On-The-Record Testimony — The NAC found that a registered representative violated NASD rules when he failed to respond to an NASD request for information and failed to appear for on-the-record testimony. The representative contended that he: was not associated with a member firm at the time of the requests; had changed his address (NASD sent the requests to his former address, which was his CRD address); and had relied on the advice of his attorney. The NAC rejected these arguments and barred the representative in all capacities and assessed costs.

False Reimbursement Requests

Registered Representative Barred for Overstating Actual Expenses on Employee Business Expense Reports — NASD settled a matter involving a registered representative who submitted to his member firm employee business expense reports in which he overstated his actual expenses and improperly obtained from the firm more than $15,000 in reimbursements to which he was not entitled. NASD found that he violated NASD Rule 2110 and barred him in all capacities.

Falsifying Customer Records

Registered Representative Fined and Suspended for Two Years for Falsifying Customer Records — NASD settled a matter involving a registered representative who, over the course of six months, falsified customer account forms by designating himself as the registered representative of record in connection with the solicitation of numerous public customers for purchases of variable life insurance products. Rather than the registered representative, an unregistered person had in fact solicited the customers. NASD found that the registered representative assisted another individual in violating NASD rules by engaging in the securities business without the benefit of registration. NASD fined the registered representative $10,000 and suspended him in all capacities for two years.

Misrepresentations on a Form U4

Registered Representative Barred for Willfully Misrepresenting Information on a Form U4 — NASD settled a matter involving a registered representative who willfully misrepresented his social security number on a Form U4. NASD found that the registered representative's actions violated NASD rules and barred him in all capacities. Additionally, since the settlement included a finding that the representative willfully misrepresented material facts, under the Securities Exchange Act of 1934, the representative may be statutorily disqualified from the industry.

Private Securities Transactions

Registered Representative Fined and Suspended for Participating in Private Securities Transactions (Without Receiving Remuneration) Without Providing Member Firm with Prior Written Notice — The NAC found that a registered representative violated NASD rules when he referred several of his clients to an individual not associated with his member firm. The representative contended that he referred the clients because the clients wanted investments that would bring a greater rate of return than they were getting through their managed accounts. The representative had no business connection to the individual to whom he referred his clients and received no remuneration for the referrals. The individual to whom the representative referred his clients sold his clients general partnership interests that ultimately resulted in significant losses for the clients. NASD concluded that the representative's involvement in the referrals was significant enough to trigger the requirement that he provide prior written notice to his member firm and that he failed to provide such notice. NASD suspended the representative in all capacities for 30 business days, fined him $25,000, and imposed costs.
Registered Representative Barred for Participating in Private Securities Transactions Without Providing Prior Written Notice to Member Firm — The NAC found that a registered representative violated NASD rules when he sold instruments away from his firm without providing his firm with prior written notice of the sales. The representative sold clients instruments that purportedly provided investors with a tax lien certificate that represented the right to collect delinquent taxes on real property. The NAC concluded that the instruments were securities, that the representative created the impression for his clients that his member firm sanctioned the sales, and that the representative did not provide prior written notice to his firm. The NAC found that the representative violated NASD rules, barred him in all capacities, and assessed costs.

Signing Customer Names without Authorization

Registered Representative Fined and Suspended for Signing the Names of Customers without Authorization or Consent — NASD settled a matter involving a registered representative who signed the names of four customers on fourteen documents, including applications for variable annuities and life insurance policies, without the customers' knowledge, authorization or consent. NASD found that the registered representative's actions violated NASD rules, suspended him in all capacities for two years, and fined him $5,000.
Registered Representative Fined and Suspended for Signing the Names of Customers without Authorization or Consent — NASD settled a matter involving a registered representative who signed the names of two customers on acknowledgement receipts for various documents without the customers' knowledge, authorization or consent. NASD found that the registered representative's actions violated NASD rules, suspended him in all capacities for one year, and fined him $5,000.