On January 31, 2005, the Sponsoring Firm1 (“the Firm”) filed a Membership Continuance Application (“MC-400” or “the Application”) with NASD’s Department of Registration and Disclosure, seeking to permit X, a person subject to a statutory disqualification, to continue to associate with the Firm as a general securities representative. A hearing was not held in this matter. Rather, pursuant to NASD Procedural Rule 9523, NASD’s Department of Member Regulation (“Member Regulation”) recommended that the Chair of the Statutory Disqualification Committee, acting on behalf of the National Adjudicatory Council, approve X’s proposed association with the Sponsoring Firm pursuant to the terms and conditions set forth below. 

X is statutorily disqualified because he failed to cause an amendment to be filed to his Uniform Application for Securities Industry Registration or Transfer (“Form U4”) to reflect that he had been charged with and convicted of misdemeanor property theft. In 2004, NASD's Department of Enforcement (“Enforcement”) accepted X’s submission of a Letter of Acceptance, Waiver and Consent (“AWC”) for this violation. NASD suspended X for nine months in any capacity and imposed a $5,000 fine. The AWC also specifically provided that: 

[X] understand[s] that this settlement includes a finding that . . . [he] willfully misrepresented a material fact on a Form U-4, and that . . .this misrepresentation makes [him] subject to a statutory disqualification with respect to association with a member. 

In the AWC, X consented to NASD's finding that, from May 2002, through February 2003, while he was associated with Firm One, he willfully failed to disclose his misdemeanor property theft charge and conviction. The AWC further stated that X failed to take any other steps during the relevant period to ensure that his Form U4 was amended to reflect the misdemeanor property theft charge and conviction. X represents that he orally disclosed the misdemeanor charge and conviction to the Sponsoring Firm during his first job interview with the Firm in November 2002, and the record shows that he disclosed the incident on the Form U4 he filed with the Sponsoring Firm in February 2003.

X first registered in the securities industry as a general securities representative in March 2000. He passed the uniform combined state law examination in April 2000. He was previously employed by Firm One from April 2000 until March 2003. X has been associated with the Sponsoring Firm since February 2003. 

X has no other regulatory or criminal history.

1. In January 1991, the State 2 Corporation Commission, Securities Division, fined the Firm $3,500 because one of its representatives engaged in approximately 20 transactions with seven State 2 residents before State 2 had approved the Firm’s license.

2. In October 2001, the Securities and Exchange Commission imposed an Order Instituting Public Administrative Proceedings ("Order") against the Firm and its president, Employee 1. The Commission found that, from December 1991 to August 1993, the Firm and Employee 1 failed to reasonably supervise a former Sponsoring Firm registered representative. The Commission ordered that the Firm shall not maintain any branch office that is not supervised by an on-site registered principal and subjected to semi-annual surprise inspections, and shall not employ or contract with any registered representative who is not located in its main office or a branch office, unless that representative is subjected to an annual inspection, on a surprise basis if possible. The Commission also ordered the Firm and Employee 1 to each pay a civil penalty of $50,000, and barred Employee 1 from association with any broker-dealer or investment adviser in a supervisory capacity with the proviso that, after one year, he may apply to become so associated.In July 2002, the Commission issued a complaint and an application for a preliminary injunction against Employee 1 and the Sponsoring Firm, alleging that Employee 1 was violating the terms of his bar by acting as a supervisor. In September 2002, the United States District Court for State 3 granted the Commission’s application for a preliminary injunction. In May 2003, the District Court granted the Commission’s motion to dismiss the complaint, citing Employee 1’s resignation as president and registered principal of the Sponsoring Firm, as well as evidence obtained through discovery.

3. In 2003, NASD accepted a Letter of Acceptance, Waiver and Consent ("AWC") from the Firm that imposed a censure and a $41,000 fine. The AWC cited the Firm for registration violations, continuing education violations, and failure to have appropriate written supervisory procedures regarding those areas.

The Firm currently employs one other statutorily disqualified individual, Employee 1, who is subject to a disqualification based on the Commission’s Order, discussed above.

Finally, the Firm has agreed to the following comprehensive supervisory plan to ensure that it will be able to maintain future compliance with the plan of heightened supervision for X (heightened supervision designed for X noted in RED):

1. The Sponsoring Firm will amend its written supervisory procedures to state that the Proposed Supervisor is the primary supervisor responsible for X;

2. X will not maintain discretionary accounts;

3. X will not act in a supervisory capacity;

4. The Proposed Supervisor will supervise X on-site when X is in the Sponsoring Firm’s branch office located in State 1;

5. At all times, while employed by the Sponsoring Firm, X will be required to keep in force an Errors & Omissions ("E&O") insurance policy (The Sponsoring Firm does not provide E&O insurance to its registered representatives. All the Sponsoring Firm associates are required to purchase policies from a reputable insure);

6. X will primarily be engaged in sales of mutual funds and variable products;

7. The Proposed Supervisor will review all of X’s new account forms, on a weekly basis, and will evidence his review by signing the forms;

8. The Proposed Supervisor will review and approve X’s order tickets before they are executed, and will evidence his review by initialing the order tickets;

9. The Proposed Supervisor will randomly and periodically contact X’s clients to ensure that X is maintaining good business practices. The Proposed Supervisor will maintain and segregate documentation related to those reviews, to allow for examiner access;

10.The Proposed Supervisor will review X’s outgoing and incoming written correspondence on a weekly basis;

11. X must disclose to the Proposed Supervisor, on a monthly basis, details related to his outside sales activity. The disclosure must contain X’s activity log, phone call log, appointment log and a to-do list;

Robert E. Kauffman, 51 S.E.C. 838, 840 (1993), aff’d, 40 F.3d 1240 (3d Cir. 1994) (table): "Every person submitting registration documents [to NASD] has the obligation to ensure that the information printed therein is true and accurate.".