- Proposed Supervision
- Timely Notices
- Regulatory History
PLAN OF HEIGHTENED SUPERVISION
The Sponsoring Firm has agreed to the following comprehensive supervisory plan to ensure that it will be able to maintain heightened supervision for X. The Sponsoring Firm did not indicate by asterisk which of the proposed procedures were heightened as to X and not required for other registered representatives.
1. The Proposed Supervisor agrees to be the primary supervisor responsible for X;
2. The Proposed Supervisor and X certify that they are not related by blood or marriage;
3. 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 supervisor from the Proposed Supervisor to another person;
4. X will be required to maintain his office of employment at the same office as the Proposed Supervisor in City 4, State 1;
5. X will have no supervisory responsibilities;
6. The Proposed Supervisor will review and approve all new account forms and forward them to the Sponsoring Firm’s compliance department for final approval;
7. X will not maintain discretionary accounts;
8. X will not participate in initial public offerings;
9. The Sponsoring Firm’s chief compliance officer, Employee 1, will review and approve all of X’s trades on a daily basis by utilizing the Sponsoring Firm’s electronic trading surveillance software;
10. The Proposed Supervisor will review X’s incoming and outgoing mail on a daily basis. X will not send correspondence without the Proposed Supervisor’s review and approval;
11. The Proposed Supervisor will review all written presentations and sales proposals that X intends to use;
12. The Proposed Supervisor will review X’s sales contacts as to the nature of the contact;
13. The Proposed Supervisor will make random calls to X’s customers on a monthly basis to verify that X has adhered to all standards and disciplines established by the Sponsoring Firm;
14. At least once per week, the Proposed Supervisor will meet with X to review his activities to assure compliance with the Sponsoring Firm’s written supervisory procedures and with the heightened supervisory procedures;
15. All complaints pertaining to X, whether oral or written, will be immediately referred to the Proposed Supervisor for review and then to the Sponsoring Firm’s compliance officer. The Proposed Supervisor 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. The Proposed Supervisor will segregate documents pertaining to these complaints for review during any statutory disqualification examination;
16. If, at any time, The Proposed Supervisor feels that X has not complied with these heightened supervisory terms and conditions, he will submit a written report to X that requests his acknowledgement and understanding of the compliance deficiencies in question, and will propose a plan as to how the deficiencies will be corrected. X will be required to sign this report and the Proposed Supervisor will forward it to the Sponsoring Firm’s chief compliance officer for review and approval. The Proposed Supervisor will also maintain a copy of the signed report and proposed corrective plan in X’s personnel file;
17. The Proposed Supervisor will be required to certify to the Sponsoring Firm’s compliance department on a quarterly basis (March 31, June 30, September 30,and December 31 of each year) that the Proposed Supervisor and X are in compliance with all of the above conditions of heightened supervision of X; and
18. At least once during each calendar quarter, a member of the Sponsoring Firm’s compliance department will make an unannounced visit to X’s office to ensure compliance with this agreement.
X’s felony conviction for DUI is recent—September 2006—and represents his fourth conviction for driving under the influence of alcohol. We appreciate that X has taken steps to deal with his addiction by attending the court-ordered 12-month treatment program and attending Alcoholics Anonymous meetings. Nonetheless, we find that insufficient time has passed to enable X to demonstrate that the change in his behavioral pattern is fundamental and long-lasting and that he can conduct himself in a responsible and compliant fashion in the securities industry.
At the hearing, X testified that he provided timely information regarding the 2005 charges to his former compliance officer at Firm 2 and that he did not understand why his Form U4 did not reflect such information. The Hearing Panel granted X’s request to file a post-hearing submission consisting of deposition testimony from his former compliance officer on this topic. The deposition testimony, however, is inconsistent. The former compliance officer readily agreed that X promptly informed him orally of the June 2005 arrest, which was a misdemeanor DUI. The former compliance officer also testified that he relayed this information to Firm 2’s management and legal department, and that he understood that they were waiting to see the ultimate disposition of the arrest before reporting it on the Form U4. The former compliance officer also testified, however, that he did "not recall" that X told him in August 2005 that the DUI arrest had been upgraded to a felony, although he did recall that X came to him shortly after the June 2005 DUI arrest with a "sob story" about how the misdemeanor was "more of a serious offense." The August 2005 upgrade of the charge to a felony was a particularly important fact for X to have disclosed to Firm 2 because a felony conviction results in a person being subject to statutory disqualification. Based on this inconsistent evidence, we cannot find that X fulfilled his obligation to promptly inform his employer of the gravity of the charges against him in order to make proper disclosure on his Form U4.
Four customers filed complaints against X between 1999 and 2006. Two of those complaints were denied, but the other two, which both alleged unsuitable transactions, were settled by Firm 1 for $20,000 and $35,433. Moreover, X was discharged by two of his former employers. Firm 1 discharged X in March 1999 after conducting a review of his customer accounts and questioning him about inappropriate purchases of initial public offerings by seniors. Firm 2 discharged X in May 2003 for taking "discretion in client accounts."
X’s disciplinary history and his repeated criminal convictions for DUI demonstrate a lack of respect for authority and an inability to conform to the regulatory atmosphere of the securities industry.
Although the NAC noted the lack of formal disciplinary history for the Sponsoring Firm, the Proposed Supervisor, and Employee 1, these facts do not outweigh our concerns about the seriousness and recency of X’s conviction, his history of customer complaints, and the relatively short period of his sobriety. We are also not persuaded that the Sponsoring Firm has structured an adequate plan of heightened supervision for X. At the hearing, the Proposed Supervisor testified that he is a producing principal who currently supervises nine other individuals and that he expects to receive an override on X’s production. We question whether the Proposed Supervisor has sufficient time to devote to the heightened supervision of a statutorily disqualified individual such as X, and whether X’s supervisor should directly profit from X’s production. Further, the proposed supervisory procedures continue to place sole responsibility for the review and approval of X’s daily trades upon Employee 1, via the Sponsoring Firm’s electronic trading surveillance software, and not on the Proposed Supervisor, the primary on-site supervisor.
Employee 1’s testimony at the hearing also fails to establish the Sponsoring Firm’s ability to comply with terms of heightened supervision for a statutorily disqualified person. Employee 1 stated that he currently employs eight representatives, including X, who are subject to the Sponsoring Firm’s own heightened supervisory procedures due to certain disclosures on their Forms U4. The Sponsoring Firm’s procedures restrict such individuals from working alone from their homes, yet Employee 1 concedes that X has been permitted to work from his home since he started at the Sponsoring Firm in June 2006. When Employee 1 was questioned about this discrepancy at the hearing, he stated: "I guess I can’t answer that." Such inattention to the requirements of heightened supervision is not acceptable in statutory disqualification matters.