Statutory Disqualification Index
SEC and FINRA
CASES OF NOTE
SD02009
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 Sponsoring Firm1 and Sponsoring Firm2

 MC-400: November 2001

Redacted Decision
SD Decision No. 02009

APPROVED after hearing before Statutory Disqualification Committee/NAC

Filed Under: Felony, DUI, Recency, Treatment/Rehabilitation, Approval after hearing
SD Event

1994 felony conviction for driving under the influence (third violation) resulting in 12 months jail, three yearsí probation, driverís license revocation.

Sentence Expiration

Discharged from probation 1997 and driving privileges reinstated 2000

Prior Industry Activity

Series 6 and 63 representative with Firm1 and Firm2 in 1992. Employed with firms since 1989. General securities representative and Series 63 in 1996.  GSP 2000. Employed in industry from 1996 to 1998 without going through SD process. 

Background

X did not disclose felony on Form U-4 because manager stated incident was not financial-related. Circumstances of conviction were apparently well-known to colleagues at firms.   

X had 9 insurance-related customer complaints filed against him since 1989, which did not relate to mishandling of money or securities. No cash settlements and seven of the complaints were related. Firm2 provided disputed services sought to the 7 accounts and the remaining 2 did not proceed against X. No other regulatory history.

Sponsoring Firm

Firm1: NASD member since 1969.  BD selling variagble life insurance and annuities in addition to non-securities products.68 OSJs and 669 branches.  Employs 1,157 registered principals, 9,715 RRs and 46,000 employees

Firm2: NASD member since 1984. 59 OSJs and 662 branches. Employs 1,131 registered principals, 9,512 RRs and 46,000 employees. Firm2 has substantial overlap with Firm1.

AWC $500 fine/Censure for net capital violation. LOCs for reporting of settlements, customer complaint, and U-5, and for failure to notify of merger with Firm2 

Firms have about 7 legal proceedings pending by clients (sales practices) and another BD. Firm employs one other SD (1973 Permanent Injunction) who is not subject to routine SD exam and is employed at another location from X subject to supervision by another GSP.

Proposed Activity

X to continue to be employed as a Series 6 rep in his one-person office. Compensation is commissions and a percentage override.

Proposed Supervisor

Managing Director at office 45 miles from X in same state. Investment Company Variable Contracts Representative since 1994 and Investment Company Variable Contracts Principal since 1998.  GSR since 2001. In industry since 1993. Has two complaints involving insurance and services, which were later rendered. 

Supervisor will travel to Xís office unannounced every other week; on alternate weeks X will travel to Supervisor In Proposed Supervisorís absence, Firmís CFO will substitue.  GSP since 1999 with no regulatory history.

Member Regulation Recommendation

Permitted

Considerations

Xís disqualification occurred 8 years ago without recurrence and he was released from probation more than 4 years ago.  X sought rehabilitation through AA (had not consumed alcohol since 1994).  Conviction not securities or financial related, and no showing of dishonesty.  No intervening misconduct. 

The failure to disclose the felony on Form U-4 deemed understandable in light of full disclosure to former supervisor by RR and reasonable reliance upon erroneous advice.  Off site supervision plan adequate.

UNDERTAKINGS

1.         The Proposed Supervisor will travel from State 1 to meet with X every other week in X's office in State 1.  These visits will be unannounced.  On the alternate weeks, X will travel to the Proposed Supervisor's office in State 1 where the Proposed Supervisor will conduct his review. 

2.         The Proposed Supervisor will review all business transactions on a weekly basis. 

3.         The Proposed Supervisor will initial X's case files and review his sales material on a weekly basis. 

4.         All new accounts for the various products that X can sell pursuant to his Series 6 registration will be sent (via U.S. mail) to the Proposed Supervisor's attention for approval.           

5.         X will not act as a supervisor.           

6.         X will not maintain discretionary accounts

7.         All complaintspertaining to X, whether written or verbal, will be immediately reviewed by the Proposed Supervisor and forwarded to the Compliance Director.  Documents pertaining to these complaints should be kept segregated for ease of review. 

8.         X will be subject to an annual compliance inspection.           

9.         The Proposed Supervisor will review X's outgoing and incoming written correspondence at the time they are either sent or received.  All outgoing correspondence will be reviewed and approved by the Proposed Supervisor.           

10.       For the duration of X's statutory disqualification, Sponsoring Firm 1 and the Sponsoring Firm 2 must obtain prior approval from Member Regulation if they wish to change X's responsible supervisor from the Proposed Supervisor to another person.

11.       Both firms will amend their supervisory procedures to specify who is responsible for supervising X, and the supervisory procedures will include the special supervisory program set forth above.

Citations

Frank Kufrovich, Exchange Act Rel. No. 4537(Feb. 13, 2002) [nature and recency of a felony].

 
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