Quarterly Disciplinary Review - Summer Issue/June 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.

Unauthorized Trading

Registered Representative Barred for Effecting Unauthorized Trades -- NASD settled a matter involving a registered representative's effecting 14 transactions over the course of three months in a customer account without the customer's prior knowledge, authorization, or consent. NASD barred the registered representative in all capacities.
Registered Representative Barred for Effecting One Unauthorized Trade -- NASD settled a matter involving a registered representative's executing one unauthorized mutual fund transaction in a customer account and forging the customer's signature on a universal switch letter without the customer's authorization or consent. NASD barred the registered representative in all capacities.
Registered Representative Barred for Effecting Unauthorized Trades -- The NAC found that a registered representative violated NASD rules when he executed 12 transactions in two customer accounts without customer authorization. The NAC affirmed a default decision entered against the representative for his failure to participate in a pre-hearing conference and barred the representative in all capacities.
Registered Representative Barred for Effecting One Unauthorized Trade and Failing to Respond to NASD Requests for Information -- The NAC found that a registered representative violated NASD rules when he effected one unauthorized stock purchase in a customer account and failed to respond to three NASD requests for information regarding the unauthorized trade. The NAC barred the registered representative in all capacities.
Registered Representative Barred and Ordered to Pay Restitution to Customers for Effecting Unauthorized Trades and Providing Misleading or Inaccurate Information to a Customer -- The NAC found that a registered representative violated NASD rules when he executed 10 unauthorized transactions in the accounts of five customers and provided misleading and inaccurate information to a customer by not informing the customer that the customer's stock purchases were cancelled without the customer's authorization. The NAC barred the registered representative in all capacities and ordered him to pay restitution in excess of $25,000 to the injured customers.

Unsuitable Recommendations

Registered Representative Suspended, Fined, and Required to Incur Cost of Customer Exchange for Making Unsuitable Recommendations and Failing to Inform Customers of Material Facts Related to Their Investments -- NASD settled a matter involving a registered representative's recommending to several retirees that they invest in a certain class of shares of a growth fund. Each recommendation was unsuitable because of the amount sold to each investor, the sales and distribution charges that the investors incurred, and the investors' ability to purchase another class of the same security with substantially lower sales charges. NASD also found that the representative failed to disclose to each customer that the securities they bought were subject to higher ongoing operating expenses than another class of the same stock. NASD suspended the representative in all capacities for 10 business days, fined him $15,000, and required that he be jointly responsible with his firm for incurring the cost of offering to the customers an exchange to a different class of securities.
Registered Representative Suspended, Fined, and Ordered to Disgorge Commissions for Recommending Unsuitable Investments to a Customer -- NASD settled a matter involving a registered representative's recommendation that a customer transfer from one variable annuity to another, causing the customer to incur a substantial surrender cost. NASD concluded that the new investment was similar to the old, provided no benefit to the customer, and was not suitable. NASD suspended the representative in all capacities for 10 business days, fined him $2,500, and ordered that he disgorge his commissions plus interest.

Selling Away

Registered Representative Fined and Suspended for Selling Away -- The NAC found that a registered representative violated NASD rules when he sold limited partnership units to 15 customers for compensation, without prior written notice to and approval by his member firm. The NAC noted that it considers private securities transaction violations to be a serious breach of a registered representative's duty to his member firm and the investing public and suspended the registered representative in all capacities for 180 days and fined him in excess of $25,000 (the amount of his ill-gotten gains plus a fine).
Registered Representative Fined and Suspended for Selling Away and Using an Inaccurate Offering Memorandum to Solicit Investors for a Limited Partnership -- The NAC found that a registered representative with 40 years of experience violated NASD rules when he sold limited partnership interests to public investors without notice to or the approval of his member firm. The NAC rejected as a defense the representative's assertion that he had not violated NASD Rules because he did not solicit new investors while associated with a member firm, but merely made follow-up calls to investors that he had already solicited to encourage them to close their purchases. The NAC also found that the representative violated NASD and SEC anti-fraud rules when he recklessly used an offering memorandum to solicit limited partnership investors without reviewing the memorandum and correcting representations in it regarding his investment banking experience. The NAC suspended the representative in all capacities for six months and fined him in excess of $80,000.