RRBDLAW.com 917-520-2836 : SEC and FINRA Statutory Disqualification Index SD03007

Statutory Disqualification Index

SEC and FINRA

CASES OF NOTE

SD03007

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.

SD Event
Sentence Expiration
Prior Industry Activity
Background
Sponsoring Firm
Proposed Activity
Proposed Supervisor
Member Regulation Recommendation
Considerations
Citations

In the Matter of the Continued Association of X as a General Securities Representative with The Sponsoring Firm

MC-400: April 21, 2003

Redacted SD Decision
No. 03007

DENIED by Hearing Panel of the NASD's Statutory Disqualification Committee/ National Adjudicatory Council

July 2003, a subcommittee ("Hearing Panel") of NASD's Statutory Disqualification Committee held a hearing.

Filed Under: Felony, Recency, Denial

SD Event

X negotiated six insurance checks, totaling $107,699.76, that he knew were fraudulent; and knowingly participated in the conspiracy through which he obtained the fraudulent checks in the name of his businesses, and that he knew he was not entitled to receive the checks. In 2001, X pled guilty to the felony charge of conspiracy to commit insurance fraud, and was sentenced in 2002 to three months in prison; two years of supervised probation, including five months of home detention with electronic monitoring; and 200 hours of community service. In addition, X was ordered to pay $107,699.76 in restitution. X's period of supervised release is scheduled to end in August 2004.

Sentence Expiration

Supervised release ends 2004. Statutorily disqualified through March 2012.

Prior Industry Activity

X became associated with the Sponsoring Firm in 1999 as an investment company and variable contracts products representative and as an investment company and variable contracts products principal. In 2000, X also became registered with the Firm as a general securities representative. He was employed with a previous member firm from 1992 through 1999, as an investment company and variable contracts products representative, and from 1996 to 1999, as an investment company and variable contracts products principal.

Background

Two customer complaints were filed against X:

In 2000 a customer alleged that X misrepresented facts by not informing the customer of a variable life insurance policy change. The complaint was settled by cancellation of the insurance policy and payment of $10,122.46 (no contribution by X) to the customer. X provided a letter at the eligibility hearing from the customer stating that his complaint involved the new agent who had taken over the account when X left the former firm, and had nothing to do with the way in which X handled the account. According to the customer's letter, the new agent had made some changes to the customer's policy and had misinformed him about those changes. The customer further stated that he is still a client of X's.
In 2001 a customer alleged that X made misrepresentations regarding the flexibility of premium payments during the sale of a variable life insurance policy. After investigating, the previous member firm found no basis for the customer complaint.

Sponsoring Firm

The Sponsoring Firm has been a member of NASD since 1987. The Firm has five offices of supervisory jurisdiction (“OSJ”) and 39 branch offices, and it employs 10 registered principals, 71 registered representatives and 26 employees. The Firm engages in the retail sale of over-the-counter equity securities; the retail sale of mutual funds; the sale of tax shelters or limited partnerships in primary distributions; and the sale of variable life insurance or annuities.

Proposed Activity

Employ X as a general securities representative. The Firm originally proposed to have X work out of a branch office in State 1. At the eligibility hearing, however, X's Proposed Supervisor and X testified that they subsequently had decided to have the Proposed Supervisor supervise X onsite at the Firm's State 1 office. X would sell securities, life insurance and annuities, and disability income and Long Term Care ("LTC") products. The Firm expects X to work from his office at least 50 percent of the business day and to be out of the office visiting clients the other part of the business day.

Proposed Supervisor

The Proposed Supervisor is the Firm's President and has been employed with the Firm as a general securities principal since August 1986. Neither the Sponsoring Firm nor the Proposed Supervisor has any formal or informal regulatory history. The two actions against the Firm that are listed in its MC-400 as pending litigation have been dismissed.

Member Regulation Recommendation

Denied based on the following factors: the seriousness and recentness of the disqualifying event and the fact that the conduct involved fraud and dishonesty; the fact that X will be on supervised release until 2004; and the inadequacy of the Firm's supervisory plan, given the fact that, as proposed, it failed to provide for daily, onsite supervision. Member Regulation noted that because X was recently convicted for conduct involving deception and dishonesty, offsite supervision was unacceptable.

At the eligibility hearing, the Proposed Supervisor acknowledged Member Regulation's concern with the proposal that X be supervised offsite and agreed to revise the Firm's supervisory structure to provide for onsite supervision. Notwithstanding the Proposed Supervisor's agreement to supervise X onsite, Member Regulation did not amend its original recommendation that the Application be denied.

Considerations

X's conviction for conspiracy to commit insurance fraud is a serious matter and creates a risk to the investing public. Further, the short duration of time since X's plea agreement (November 2001) and the pendency of his supervised release militate against allowing X's re-entry into the securities industry at this time. X remains on supervised release until August 2004.

The Firm's proposed supervisory plan does not provide the heightened supervision necessary to assure us that the Sponsoring Firm will be capable of effectively preventing and detecting possible misconduct on the part of X, given that the Firm expects X to be out of the office visiting clients 50 percent of the business day.

Citations

Frank Kufrovich, Exchange Act Rel. No. 45437, 2002 SEC LEXIS 357, at *16 (Feb. 13, 2002)
(upholding NASD's denial of a statutory disqualification applicant who had committed non-securities related felonies "based upon the totality of the circumstances" and NASD's explanation of the bases for its conclusion that the applicant would present an unreasonable risk of harm to the market or investors).

Joseph Frymer, 49 S.E.C. 1181, 1182 (1989)
(NASD cannot credit any parts of testimony that differ from the provisions of a plea agreement, because to do so would constitute a collateral attack on the elements supporting the conviction).

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