NASD member in 1991. One office of supervisory jurisdiction ("OSJ") and three branch offices, and it employs 98 persons, 18 of whom are registered principals and 72 of whom are registered representatives. The Sponsoring Firm conducts a municipal finance practice and additionally engages in the sales and trading of taxable and municipal fixed income securities and government guaranteed loans and pools in transactions with municipal customers.
The Sponsoring Firm is a limited partnership. X owns, indirectly through Firm 3 (of which he is President) a corporation controlled by X, less than 10 percent of the Sponsoring Firm's controlling general partner, Firm 4. Through Firm 3 and certain trusts, X owns approximately 35 percent of the Sponsoring Firm's non-voting limited partnership units.
Since 1995, the Sponsoring Firm has received three NASD Letters of Caution ("LOCs"), been the subject of one compliance conference, entered into one AWC, and been the subject of one state disciplinary action. During this time, X was employed by the Sponsoring Firm as a registered representative trading government guaranteed pools, had no supervisory responsibility, and was not named in the following actions:
(1) This 2003 LOC addressed the Sponsoring Firm's failure to comply with NASD Conduct Rule 3010(a), (b), and (c) with respect to certain of its written supervisory procedures. The LOC also alleged that the Sponsoring Firm failed to comply with NASD Rule 3011 and the USA Patriot Act. The LOC also alleged that the Sponsoring Firm did not fully comply with SEC Rule 17a- 3(a)(7), and Municipal Securities Rulemaking Board Rule ("MSRB") G-8(vii) in connection with its failure to make certain order ticket entries. The Sponsoring Firm responded to the LOC by letter dated 2003, in which it described the actions taken by the Firm to address the issues raised in the LOC. Member Regulation has represented that the deficiencies noted in the LOC have been properly addressed.
(2) This 2002 LOC alleged that the Firm violated Conduct Rule 2110, by permitting Employee 2, a statutorily disqualified person, to participate in an offer to sell securities, in violation of the conditions of a Rule 19h-1 Notice from NASD to the SEC that allowed Employee 2 to associate with the Sponsoring Firm. The LOC also alleged that the Firm violated Conduct Rule 3010(b)(1) between 2000 and 2001, by failing to produce records documenting that a supervisor had conducted the required weekly spotchecks of the Firm's order tickets to ensure that Employee 2 had not approved transactions in a supervisory capacity during the period, and by failing to enforce and document special supervisory procedures set forth in the Rule 19h-1 Notice with respect to Employee 2. In its response to the LOC, the Sponsoring Firm stated that Employee 2’s activities did not involve the sale of securities. The Sponsoring Firm stated that Employee 2 had prepared a written proposal to a pension fund regarding the mechanism by which the Sponsoring Firm would assemble Small Business Administration ("SBA") pools and that the proposal did not identify specific securities or quote quantity, term, price, yield or delivery date. The Sponsoring Firm stated that had the proposal been accepted, another registered representative would have made offers to sell the securities in accordance with the accepted proposal. Member Regulation indicated that the problems addressed in the LOC had been properly addressed.
(3) This 2000 LOC alleged that the Sponsoring Firm's written supervisory procedures were deficient in that there was no evidence that a specific individual had been designated authority for obtaining and disseminating financial and other information to persons making recommendations of municipal securities. The LOC also alleged that the Firm failed to have one of its registered representatives complete his continuing education regulatory element within the prescribed time frame.
(4) Following a routine examination, NASD staff scheduled a 1999 compliance conference with the Sponsoring Firm. The issues for discussion included, among other topics, a net capital violation, recordkeeping violations, late registration fees, violations of MSRB rules, and customer complaint and settlement violations. By letter dated 1999, the Sponsoring Firm responded, outlining the actions that it took with respect to the deficiencies that were noted.
(5) In a 1998 AWC, the NASD found that the Sponsoring Firm violated Rule 2110 by failing to comply with MSRB recordkeeping rules. The Sponsoring Firm was censured and fined $3,000.
(6) In a 1995 consent order settlement with the State 2 Securities Division, The Sponsoring Firm was found to have effected 11 transactions in a non-institutional account before being registered as a broker-dealer in State 2. The Firm was fined $680 and ordered to notify its State 2 customers of possible rescission rights.
Statutory disqualification examinations that were conducted in 1997 for X and Employee 3 were Filed Without Action. Statutory disqualification examinations were also conducted in 1999, 2000, 2001, and 2002 for X, and each of these examinations were filed without action. Employee 3 is no longer associated with the Sponsoring Firm. The Sponsoring Firm employs one other statutorily disqualified individual, Employee 2, who was allowed to associate with the Sponsoring Firm pursuant to an SEC Rule 19h-1 Notice.