- X’s 2002 misdemeanor conviction was serious and financial-related;
- X failed to disclose the 2002 conviction to Firm1;
- X committed a second statutorily disqualifying offense in 2003;
- the 2003 felony conviction was serious and recent;
- X did not disclose the 2003 felony charge and conviction on the Forms U4 that he filed with the Sponsoring Firm; and
- the Firm did not propose an adequate plan of heightened supervision.
The Sponsoring Firm failed to provide any evidence to support its argument that X is able to operate responsibly in the securities industry at this time, or that the Firm and the Proposed Supervisor are capable of supervising X.
X argues that he forged his father’s name to the checks in question and that this activity represented “the tail end of a rebellious period of adolescence.” The record shows, however, that X forged the checks on four separate occasions between July and September 2001, indicating a pattern of relatively recent dishonest acts. Moreover, X’s ability to defraud his own father suggests to us that untrustworthy conduct toward strangers, including investors, might be possible.
X’s check forging is only one of the many criminal activities in which he has engaged. X admitted that he had a very troubled youth, and indeed, the record shows a series of criminal entries dating from 1997, when he was 15, until 2003, when he was 20. X is now 23, and he has not demonstrated that his past criminal misconduct is truly “in the past” and that the NASD can have a high degree of confidence that investors will not be at risk of harm from X. X and the Proposed Supervisor made many such declarations at the hearing, but proffered no other supporting evidence.
In 2003, X pled guilty to the felony charge of sale and transport of marijuana. At the hearing, X testified that he became involved in this activity shortly after his brief period of employment with Firm1 ended in August 2002 because he became frustrated and disenchanted with his lack of success in the securities industry. Such behavior tends to prove that X is not yet ready to enter the securities industry as he has not yet learned how to cope with setbacks and disappointment in a responsible manner.
When X submitted his initial Form U4 to Firm1 in April 2002, he failed to disclose the misdemeanor charge and conviction for check forgery. X’s inaction is not excused by his written statement to Member Regulation that he had orally disclosed his “past” to the principals of Firm1 who failed to disclose that information properly. X had the obligation to ensure the accuracy of the information on his Form U4 with Firm One. X continued his pattern of dishonesty when he failed to disclose the 2003 felony drug charge and conviction to the Sponsoring Firm on any of the initial Forms U4 or amendments thereto that he submitted between May 2003, and February 2004.
- X stated at the hearing that he had been advised by his attorney that the felony conviction would be reduced to a misdemeanor after he had completed his three-year probation in October 2006. Yet X produced no evidence to support this assertion. Further, even if that assertion is true, during the time that X remains on probation he continues to be convicted of a felony and must therefore disclose this status.
At the hearing, X also admitted that he should have checked “yes” in the box on the Form U4 to show that he had been charged with a felony. X had no explanation for this failure to disclose other than to say that he had not really read the Form U4 and had gotten into a “pattern” of checking “no” answers to all the questions. When questioned at the hearing, the Proposed Supervisor responded that he did not remember when he found out about X’s 2003 drug felony charge and conviction and he did not know why it was not indicated on any of the Forms U4. X either deliberately withheld the information about the 2003 felony charge and conviction, or failed to read the Form U4 to ensure proper disclosure. In either case, his failure to disclose this critical information is inexcusable.
The Sponsoring Firm failed to demonstrate that it and the Proposed Supervisor will be capable of providing heightened supervision to X. The Firm’s proposed supervisory procedures are minimal and do not meet the standard required for firms with statutorily disqualified individuals. The Proposed Supervisor made no effort to enhance these provisions; instead, he stated at the hearing that he would comply with whatever procedures NASD wished to impose. It is the applicant’s burden to show how it will effectively supervise the statutorily disqualified person; it is not the burden of NASD to describe a program of effective supervision to the applicant. The Proposed Supervisor’s inattention to details in this regard appears to be part of a pattern.
- For example, the MC-400 Application states that X “has been an office assistant with no customer contact.” Yet at the hearing, for the first time in the application process, the Proposed Supervisor stated that X had been working for an affiliate of the Firm, Firm 1, which he described as a consulting firm. The Proposed Supervisor further asserted at the hearing that X conducted his work from a separate office, located in the Proposed Supervisor’s home. The Proposed Supervisor could not explain, however, why the answers on the MC-400 appeared to indicate that X had been working at the Firm except to say that it looked like an assistant had completed the MC-400 on his behalf and he signed it without reading it. The Proposed Supervisor stated that the MC-400 answers appeared to be an “oversight,” and were perhaps due to a “momentary lapse of concentration.” Either the Proposed Supervisor permitted X to work for the Firm improperly as a statutorily disqualified person, or he failed to read the MC-400 and answer it completely with reference to X’s association with an affiliate. In either case, the Proposed Supervisor’s failure to provide accurate and complete information on the Application suggests to us that he will not be an effective supervisor for a statutorily disqualified individual such as X.