Statutory Disqualification Index
NOTE: Stipulations of Fact and Consent to Penalty (SFC); Offers of Settlement (OS); and Letters of Acceptance Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions & to the entry of findings. Additionally, for AWCs, if FINRA has reason to believe a violation has occurred and the member or associated person does not dispute the violation, FINRA may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member's or associated person's right to a hearing before a hearing panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed.

In the Matter of the Continued Association of X  as an Investment Company/Variable Contracts Representative with The Sponsoring Firm

MC-400: December 18, 2003
Redacted SD Decision
No. 04017

DEEMED NOT CURRENTLY SUBJECT TO A STATUTORY DISQUALIFICATION by Hearing Panel of the NASD's Statutory Disqualification Committee/ National Adjudicatory Council

July 2004, a subcommittee ("Hearing Panel") of NASD's Statutory Disqualification Committee held a hearing

Filed Under: Felony, Was there a conviction, Approval after hearing
SD Event
In March 2003, X was charged with a felony in the state of Massachusetts for indecent assault and battery on a person over 14. Massachusetts courts allow a defendant to plead that there were sufficient facts alleged to support the allegations against him. In making this plea, a judge is not accepting a guilty plea nor entering a finding of guilt.  This is essentially a pre-trial diversion program.  

X did not enter a formal guilty plea; instead, as noted above, he merely admitted to the court sufficient facts for a guilty finding to be entered and the judge continued the matter without a finding ("CWOF"). The judge ordered X to undergo three years' supervised release, to have no contact with the victim, and to participate in sex offender counseling. X will be on supervised release until March 2006. 

According to Massachusetts law, if X completes this period of supervised release without incident, the felony charge against him will be dismissed. 

The Securities Exchange Act of 1934, Section 3(a)(39) and  Art. III, Sec. 4 (g)(1) of NASD's By-Laws state that a person is subject to a statutory disqualification if  convicted of any felony within 10 years of the date of the filing of an application for membership/association with an SRO member firm.  

The Exchange Act, Section 15A(g)(2), and NASD By-Laws Art. III, Sec. 3(d), state that a person subject to statutory disqualification is ineligible to associate with a member firm unless he or she obtains special relief from NASD through the eligibility process outlined in Procedural Rules 9520 et seq.

In a letter dated November 2003, NASD's Department of Registration and Disclosure ("Registration and Disclosure") first informed X that as a convicted felon, he was subject to a statutory disqualification and that his Sponsoring Firm must promptly submit an MC-400 application or NASD would revoke X's registration without further notice. The Sponsoring Firm argued that X has not been convicted of a felony and therefore it should not have been required to submit an MC-400 application for X to undergo NASD eligibility proceedings.

At the hearing, X testified that he informed the Sponsoring Firm promptly of the felony charge and the court's action in March 2003. The Sponsoring Firm did not update X's Uniform Application for Securities Industry Registration or Transfer ("Form U4"), however, until September 2003, when X sought to amend his Form U4 to add an additional state registration. Therefore, NASD's Registration and Disclosure  was not aware of the criminal charge against X until the Firm filed the amended Form U4. 

In an Interpretative letter dated February 21, 1992, from Joseph M. Furey, Assistant Director, SEC Division of Market Regulation to Bruno Lederer, NYSE Associate General Counsel ("the Lederer Letter"), the SEC considered a Maryland criminal case that posed the question of whether an individual is convicted when he or she pleads guilty or nolo contendere and a judge then defers judgment and places the person on probation. In considering this situation, the SEC determined that a person is convicted for purposes of Section 3(a)(39) of the Exchange Act if a judge defers judgment and puts a defendant on probation after the judge either finds the defendant guilty or "accepts" a plea of nolo contendere. The SEC stated that such an individual would remain convicted until the probation is successfully completed and the charges are dismissed. 

In an Interpretative letter dated November 9, 2000, from Catherine McGuire, Chief Counsel, SEC Division of Market Regulation to Peggy Germino, Manager, NYSE ("the Germino Letter"), the SEC analyzed a California statute that permitted first-time drug offenders to have the option of pleading guilty, and then have the judge "defer" the entry of judgment. If the California defendant successfully completed the ordered treatment or program, then the court dismissed the criminal charges against the defendant. The SEC determined that, pursuant to the terms of this California statute, the court did not make a finding of guilt or accept a plea of guilty. Accordingly, the SEC concluded that the judge effectively "set aside" the plea pending the outcome of the probationary period and the defendant had not been convicted. 

In X's case, the court did not accept a plea, or enter any finding, but rather held the finding in abeyance (CWOF) pending X's successful completion of supervised release in March 2006. If X does not violate the terms of his supervised release program, then the felony charge is removed from his record. Conversely, if X violates his supervised release, then the court enters a felony conviction on his record and X becomes statutorily disqualified and subject to NASD's eligibility proceedings. 

The NAC concluded that the Massachusetts statute at issue with X is similar to the California statute considered by the SEC in the Germino Letter, and therefore found that X had not been convicted of a felony and is not subject to a statutory disqualification. Accordingly, he may maintain his registration with the Sponsoring Firm as an investment company/variable contracts representative.

Sentence Expiration
Supervised release through March 2006 (Continued the Matter Without a Finding)
Prior Industry Activity
An investment company/variable contracts representative (Series 6) and a uniform securities agent (Series 63) since June 1988. Investment advisers law agent (Series 65) since May 1999.
 X has been associated with the Sponsoring Firm since December 1995.
Sponsoring Firm
Proposed Activity
Proposed Supervisor
Member Regulation Recommendation
Interpretative letter dated February 21, 1992, from Joseph M. Furey, Assistant Director, Division of Market Regulation, SEC, to Bruno Lederer, Associate General Counsel, NYSE ("the Lederer Letter").

Interpretative letter dated November 9, 2000, from Catherine McGuire, Chief Counsel, Division of Market Regulation, SEC, to Peggy Germino, Manager, NYSE ("the Germino Letter").

Enforcement Actions