In the Matter of the Association of X as a General Securities Principal with the Sponsoring Firm 

MC-400:  December 2001 

Redacted Decision
SD Decision No. 02008

APPROVED without hearing upon the recommendation of the Department of Member Regulation in accordance with NASD Procedural Rule 9523

SD Event

1993 Class A Misdemeanor resulting in three years probation

Sentence expiration

Discharged from probation 1996

Prior Industry Activity

General securities representative and Series 63 in 1996. GSP 2000. Employed in industry from 1996 to 1998 without going through SD process. 

Background

The disqualifying event occurred when X was pledging a fraternity in his senior year of college. The pledges were asked to go to a sorority dormitory on campus and retrieve a "a pledge plaque." While X and several other pledges were in the dorm, apparently other things were taken, along with a woman's pocketbook containing cash. 

X subject to two customer complaints in 2001 that were investigated by NASD without further action.

X was employed in industry for more than one year following his disqualification in apparent violation of SD process.  NASD noted his Form U-4 disclosed conviction but CRD failed to forward SD notification until 1998 because the Forms U-4 mistakenly mentioned only the theft of property (the sorority pledge plaque) and not the theft of currency as the basis for the 1993 misdemeanor conviction.

Sponsoring Firm

NASD member since 1996. Investment banking and marketing of securities. No OSJs and no branches. Employs 11 registered principals, 38 RRs and 44 employees. AWC $500 fine/Censure for net capital violation. LOC for CE deficiency. LOC for failure to comply with SD provisions for inadequate records of correspondence review and new account opening (supervisor subsequently resigned). for trade reporting.  Firm does not employ any other SDs.

Proposed Activity

X to be employed in Firm’s retail sales office as a general securities principal responsible for sales supervision and retail broker training. Compensation is commissions and a percentage override..

Proposed Supervisor

EVP in home office. Has Series 7, 63 and 24. GSP 1996. In industry since 1995. No regulatory history. In Proposed Supervisor’s absence, Firm’s CFO will substitue.  GSP since 1999 with no regulatory history.

Member Regulation Recommendation

Permitted

Considerations

X’s disqualification occurred 9 years ago without recurrence.  Proposed supervision adequate, notwithstanding SD exam issue in 2000 (specific note taken of replacement of supervisor).  X and Proposed Supervisor not related by blood or marriage.

UNDERTAKINGS

1.         X will conduct securities business on behalf of the Sponsoring Firm only from the office where Proposed Supervisor 2 is physically located; 

2.         X will act as a principal, specifically involved with sales training and supervision of registered representatives; 

3.         The supervisory procedures of the Sponsoring Firm shall be amended clearly to establish Proposed Supervisor 2's responsibility to supervise X.  In Proposed Supervisor 2's absence, X will be supervised by Proposed Supervisor 3;           

4.         X will not maintain discretionary accounts at any time;           

5.         The review of New Account Forms will include a review for suitability;           

6.         Proposed Supervisor 2 will review and approve all of X's order tickets on a daily basis.  Proposed Supervisor 2 will review X's incoming and outgoing correspondence at the time that they are either received or sent;

7.         Proposed Supervisor 2 will keep a written record evidencing review and approval of all of X's transactions, the opening of new accounts, and all correspondence; 

8.         X will be prohibited from accepting funds from customers in his name.  Rather, all funds must be payable to either the Firm or the particular fund.  The Firm will develop a procedure to compare X's customer requests for disbursement to monthly statements;           

9.         All complaints pertaining to X, whether verbal or written, will be immediately referred to Proposed Supervisor 2 for review, and then to the Firm's Director of Compliance.  Proposed Supervisor 2 will prepare a memorandum to the file as to what measures he took to investigate the merits of the complaint (e.g., contact with the customer) and the resolution of the matter.  Documents pertaining to these complaints should be kept segregated for ease of review; 

10.       X will be required to attend an annual compliance meeting, and evidence of his attendance will be kept segregated in a file for easy review; and           

11.       For the duration of X's statutory disqualification, the Sponsoring Firm must obtain prior approval from Member Regulation if it wishes to change X's responsible supervisor from Proposed Supervisor 2 to another person. 

Citations