NASD REGULATION, INC.

OFFICE OF HEARING OFFICERS

• Section 15(b)(4)(A) of the Securities Exchange Act of 1934 
• Article III, Section 4(f) of the NASD By-Laws  
• NASD Rules 2110 and 8210

 For failing to respond timely to information requests, Dixon was fined $2,500 and suspended in any and all capacities for six months.  For filing the false U-4, Dixon was fined $2,500 fine and if she re-enters the securities industry, she must complete the Regulatory Element of her continuing education requirement within one year following her registration.  She was also assessed a total of $1,733.08 in costs.  

In 1999 Stephanie Ann Dixon was charged with four felonies (making a fraudulent insurance claim, theft, arson, and making a false or misleading insurance claim,), arising out of her having set her car on fire.  On April 28, 2000, the fraudulent claim and theft charges were dismissed, while the arson and false claim charges were reduced to misdemeanors, to which Ms. Dixon pleaded guilty and was sentenced to two years of probation.

Having put her criminal problems behind her, Dixon apparently decided to enter the securities industry. In preparation for this career move, she consulted with her mentor, who was a senior vice president at the broker-dealer with which she planned to register. She told him about her criminal history and asked how to respond to Question 23A(1)(b) on Form U-4:“[h]ave you ever . . . been charged with any felony?” He told her to answer “No,” which is what she did when she submitted her application on May 17, 2000.  Given that she had, in fact, been charged with four felonies, his advice was wrong --- very wrong. However, Dixon subsequently disclosed the felony charges and their subsequent history on a Criminal Disclosure Reporting Page.  Nonetheless, on October 23, 2000, her BD filed a Form U-5, citing her prior nondisclosure of the felony charges as the reason for her termination. 

Under Section 15(b)(4)(A) of the Securities Exchange Act of 1934 (and Article III, Section 4(f) of the NASD By-Laws), a person who “willfully” fails to disclose any material fact which is required to be stated in an industry employment application is deemed statutorily disqualified from functioning as an associated person in the securities industry.  Willfully means that a respondent knew or should have known under the particular facts and circumstances that the conduct at issue was improper. However, although a regulator needs to prove that Dixon acted intentionally, there is no requirement to prove that she was specifically aware of any rule or law she might have violated. Not unexpectedly, NASD Regulation filed a Complaint alleging that Dixon’s failure to disclose the felony charges was a willful violation.  At the conclusion of the hearing (Dixon represented herself), the Staff atypically conceded that they hadn’t proven her willfulness, and the Panel pointedly concurred. 

Nonetheless, the Panel found Dixon guilty of filing a false or inaccurate Form U-4 (but not of doing so willfully), and of failing to timely respond to requests for information (she had failed to respond to three NASD letters spanning a one year period). In determining the severity of the sanctions to be imposed, the Panel considered three points: 

(1)   the nature and significance of information at issue: The Panel considered that the felony charges were ultimately dismissed or reduced to misdemeanors and Dixon merely placed on probation. 

(2)   whether the omission resulted in a statutorily disqualified person becoming associated with a firm:Dixon did not become registered with the firm and, in fact, was terminated. 

(3)   whether the misconduct harmed a registered person, a firm, or anyone else: The Panel noted that there was no suggestion that Dixon inflicted any particular injury on the firm, its representatives, or its customers. 

For failing to respond timely to information requests, Dixon was fined $2,500 and suspended in any and all capacities for six months.  For filing the false U-4, Dixon was fined $2,500 fine and if she re-enters the securities industry, she must complete the Regulatory Element of her continuing education requirement within one year following her registration. She was also assessed a total of $1,733.08 in costs.  The Panel noted that its leniency was, in part, motivated by the fact that Dixon was a novice, who had no experience or training when she filled out the Form, and she apparently did so in reliance on the advice of a mentor.

A few closing thoughts 

If you are ever unclear about the meaning of any question on any industry form, consult with a lawyer --- or even with someone in your firm’s compliance department --- before submitting the document.  Although there are some situations in which you may be able to argue that you had reasonably relied upon a qualified professional’s advice, if you don’t provide that person with the critical, underlying documents in the matter at issue (in Dixon’s case her mentor never personally reviewed her criminal records), your explanation won’t have much credibility. Remember, the SEC and SROs tend to be sticklers about allowing respondents to shift their responsibility for regulatory compliance to a supervisor.  The securities laws and regulations implicitly hold you personally liable for you own conduct. The free advice you get from friends, colleagues and Internet chat rooms won’t be of much help you if you get in trouble.

RETURN TO REGULATORY CASES OF NOTE INDEX