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NOTE:
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 and to the
entry of findings.
STATUTORY
DISQUALIFICATION APPLICATION
2007
By
Bill Singer
In
the Matter of the Association of X as a General Securities Representative
with The Sponsoring Firm
Redacted Decision Notice Pursuant to Section 19(d) Securities Exchange Act
of 1934 Decision No. SD07001
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| In the Matter
of the Association of X as a General Securities Representative
with The Sponsoring Firm Redacted Decision Notice Pursuant to
Section 19(d) Securities Exchange Act of 1934 Decision No. SD07001 |
APPROVED
by National Adjudicatory Council
On October 30, 2006, the Sponsoring Firm (“the Firm”)
completed a Membership Continuance Application (“MC-400” or
“the Application”) seeking to permit X, a person subject to a
statutory disqualification, to associate with the Firm as a
general securities representative.
A hearing was not held in this matter. Rather, pursuant to NASD
Rule 9523, FINRA’s Department of Member Regulation (“Member
Regulation”) recommended that the Chair of the Statutory
Disqualification Committee, acting on behalf of the National
Adjudicatory Council, approve X’s proposed association with the
Sponsoring Firm. |
| SD
Event |
X is statutorily
disqualified because in October 2003, he pled guilty in a State 1
court to felony “theft
of a controlled substance,” which stemmed from his theft
of a controlled substance from the pharmacy where he was employed
as a clerk June-July 2003. On that same date, he also pled guilty
to three misdemeanor charges (not statutorily disqualifying
events) of “criminal attempt of theft of a controlled substance.”
The State 1 court sentenced X to five years’ imprisonment for
the felony conviction and 12 months for each of the three
misdemeanor convictions. The court suspended the imposition of the
prison sentences, however, and instead placed X on five years’
probation and ordered him to pay $10,374.18 in restitution. In September
2006, X received a conditional discharge from probation,
and the record shows that he paid the court-ordered restitution in
full in August 2006. The conditional discharge released X from the
supervision of his probation officer and provided that, for the
remainder of his probationary period (September 2006 – November
2008), X must continue his “good behavior” and “refrain from
violating the law in any respect.” X’s former probation
officer informed Member Regulation that X has had no intervening
offenses since his arrest in July 2003.
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| Sentence
Expiration |
X’s probation is due to
expire in November 2008 |
| Prior
Industry Activity |
X first registered in the
securities industry as a general securities representative (Series
7) in October 1983. She also passed the uniform securities agent
state law examination (Series 63) in October 1983.
X was previously employed by Firm1 from October 1983 until
November 1997, and Firm2 from November 1997 until April 2005.
Firm2 discharged X in April 2005, stating on the Uniform
Termination Notice for Securities Registration (“Form U5”)
that she “violated firm policy by accepting from a customer oral
discretion to place certain trades in his account.” X stated
that she did not exercise oral discretion, and maintained that
Firm2 had terminated her because it wanted to eliminate her and
save money by distributing her clients and income between the
remaining two members of her partnership “team.”
|
| Background |
X has not
previously been employed in the securities industry. He
qualified as a general securities representative (Series 7) in
December 2006. He also qualified as a uniform securities agent
state law (Series 63) and as a registered options principal
(Series 4) in January 2007. X is currently employed as an office
assistant for an electric company. Prior to that, he was a
full-time college student, and he completed his bachelor’s
degree in December 2006.
While attending college, he served as an unpaid
intern for the Sponsoring Firm from May to September 2006.
Member Regulation represents that the Firm terminated X’s
internship immediately when Member Regulation informed the Firm
that X could not associate with it in any manner without FINRA
approval. Member Regulation also represents that it is satisfied
with the Firm’s response to this situation.
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| Sponsoring
Firm |
The Sponsoring Firm became
a FINRA member in June 1992. The Firm engages in a general
securities business, has 1 office of supervisory jurisdiction and
no branch offices, and employs 4 registered principals and 5
registered representatives.
FINRA has not yet commenced its 2007 routine examination of the
Firm.
- FINRA issued a Letter
of Caution (“the 2005 LOC”) and a Minor
Rule Violation (“the 2005 MRV”) to the Firm after
its 2005 routine examination.
- The 2005 LOC cited the Firm for several deficiencies,
including membership agreement violations, books and
records inaccuracies, inadequate written supervisory
procedures, failure to timely report a customer complaint,
and failure to test the Firm’s Anti-Money Laundering
Program. The Firm responded to the 2005 LOC in a letter
dated April 2006, stating that it had corrected the
deficiencies.
- The 2005 MRV fined the Firm $1,000 for untimely
reporting of municipal securities transactions.
- FINRA also issued an LOC to the Firm following its 2003
routine examination (“the 2003 LOC”).
- The 2003 LOC cited the Firm for inaccurate books and
records, one deficient employee Uniform Application for
Securities Industry Registration or Transfer (“Form U4”),
inadequate written supervisory procedures, inaccurate
customer records, failure to maintain options agreements,
and late reporting of municipal securities transactions.
The Firm responded to the 2003 LOC by letter dated June
2003, stating that it had corrected the
deficiencies.
- The Firm also has some recent state disciplinary
history.
- In March 2004, the State 2 Securities Department denied
the Firm’s application for registration as a dealer in
State 2 because the Firm effected
69 purchase transactions for two State 2 residents prior
to being registered in that state.
The record shows no additional customer complaints,
disciplinary proceedings, or arbitrations against the Firm. |
| Proposed
Activity |
General
Securities Representative. The Firm will compensate him by a salary
and a company bonus. |
| Proposed
Supervisor |
The Proposed Supervisor will supervise X on-site at the Firm’s
home office in State 1. The Proposed Supervisor has been employed
by the Sponsoring Firm since June 1999, when he entered the
securities industry. He qualified as a general securities
representative in September 1999 and as a general securities
principal (Series 24) in July 2003. FINRA’s Central Registration
Depository (“CRD”) shows no
disciplinary or regulatory proceedings, complaints, or
arbitrations against the Proposed Supervisor.
|
| Member
Regulation Recommendation |
Approval |
| Considerations |
- Whether the particular felony at issue, examined in light of
the circumstances related to the felony and other relevant
facts and circumstances, creates an unreasonable
risk of harm to the market or investors; and
- The totality of the
circumstances in reaching a judgment about X’s future
ability to deal with the public in a manner that comports with
FINRA’s requirements for high standards of commercial honor
and just and equitable principles of trade in the conduct of
his business.
Although X’s criminal conviction is serious, the felony
conviction occurred in 2003, almost four years ago, and the
NAC is not aware of any
other misconduct by X. Also, X has been punished for his
felony offense by a State 1 court, which ordered him to pay
$10,374.18 in restitution and placed him on probation for five
years. X paid the restitution, and he received a conditional
discharge from probation in September 2006.
Further, although NAC was initially concerned with the fact
that X’s felony involved theft from a former employer, it
recognized that X did not
steal money, but rather stole drugs to support his then addiction.
The record indicates that since his 2003 arrest, however, X has
been participating successfully in a program
of recovery with Alcoholics and Narcotics Anonymous. X’s
recovery sponsor submitted a letter stating that he and X attend
meetings together several times each week and actively work
to continue X’s sobriety. X has also demonstrated his commitment
to his rehabilitation by completing
his college degree and by maintaining an office assistant
position with an electric company, where he has been responsible
for accounts payable and receivable, as well as payroll.
Moreover, as an added precaution, we note that the Firm has
specifically provided that X
will not have access to cash or securities of customers.
The proposed supervisor is well qualified and has worked in the
securities industry since 1999 with no disciplinary history.
The Sponsoring Firm has been a member of FINRA since 1992, with
no formal disciplinary history. The Firm has agreed to the
following comprehensive supervisory plan to ensure that it will be
able to maintain heightened supervision for X (Heightened
Supervision not accorded to other RRs af Firm is noted in RED):
- The Sponsoring Firm will amend its
written supervisory procedures to state that the Proposed
Supervisor is the primary supervisor responsible for X;
- X will not
maintain discretionary accounts and will not have access to
cash or securities of customers;
- X will be employed as a general
securities representative and will not be permitted to act in
a supervisory capacity;
- The Proposed
Supervisor will supervise X on-site at the Firm’s
home office in State 1;
- The Proposed Supervisor will review
and pre-approve each securities account prior to X’s opening
of the account. The Proposed Supervisor will document his
review by dating and signing the account paperwork and
maintaining it at the Firm’s home office;
- The Proposed Supervisor will review
and approve X’s orders after execution, or as soon as
practicable, on a “T + 1” basis. The Proposed Supervisor
will also review the trade reports on a T + 1 basis and
document his review by dating and initialing them and
maintaining them at the Firm’s home office;
- The Proposed Supervisor will review X’s
incoming written correspondence (including e-mail
communications) upon its arrival and will review outgoing
correspondence before it is sent;
- For the purposes of client
communication, X will only
be allowed to maintain an e-mail account that is held at the
Firm, with all e-mails being filtered through the Firm’s
e-mail system. If X receives a business-related e-mail message
in another e-mail account outside the Firm, he will
immediately deliver that message to the Firm’s e-mail
account. X will also
inform the Firm of all outside e-mail accounts that he
maintains. The Proposed Supervisor will conduct a
weekly review of all email messages that X sends or receives
and will print the e-mail messages and keep them segregated
for ease of review during any statutory disqualification
audit;
- All complaints pertaining to X,
whether oral or written, will be immediately referred to the
Proposed Supervisor for review, and then to the Compliance
Department of the Firm. 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 keep all documents pertaining to these
complaints segregated for ease of review;
- If the Proposed Supervisor is out of
the office, the Proposed Supervisor 2, president of the Firm,
will act as X’s interim supervisor;
- For the duration of X’s statutory
disqualification, the Firm must obtain
prior approval from Member Regulation if it wishes to change X’s
responsible supervisor from the Proposed Supervisor to
another person, or if it wishes to make a material change in X’s
job responsibilities; and
- The Proposed Supervisor must certify
quarterly (March 31st, June 30th, September 30th, and December
31st) to the Compliance Department of the Firm that he and X
are in compliance with all of the above conditions of
heightened supervision.
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| Citations |
FINRA By-Laws, Art. III,
Sec. 4 (referring to Section 3(a)(39) of the Securities Exchange
Act of 1934 (“the Exchange Act”), which provides that all
felony convictions are statutorily disqualifying events if
they occurred within 10
years preceding the filing of an application to enter the
securities industry).
FINRA By- Laws, Art. III, Sec. 4 (referring to Section 3(a)(39)
of the Exchange Act, which provides that misdemeanor
theft is a statutorily disqualifying event only if the theft
involves “funds or securities”).
Frank Kufrovich, 55 S.E.C. 616, 625-26 (2002) (upholding FINRA’s
denial of a statutory disqualification applicant who had committed
non-securities related felonies “based upon the totality
of the circumstances” and FINRA’s explanation of the
bases for its conclusion that the applicant would present an
unreasonable risk of harm to the market or investors).
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| THE ARTICLES PUBLISHED HERE REPRESENT THE PERSONAL VIEWS OF THE
AUTHOR, AND NOT NECESSARILY THE VIEWS OF ANY LAW FIRM OR ORGANIZATION
WITH WHICH HE MAY BE AFFILIATED. ALL STATEMENTS MADE IN THESE ARTICLES
ARE FOR GENERAL INFORMATION ONLY AND ARE NOT INTENDED TO PROVIDE,
NOR SHOULD THEY BE RELIED ON AS, LEGAL ADVICE. READERS MUST CONSULT
WITH QUALIFIED LEGAL COUNSEL BEFORE RELYING UPON ANY CONTENT CONTAINED
HEREIN. STATEMENTS MADE IN THESE ARTICLES MAY BE INCORRECT FOR YOUR
JURISDICTION OR AT THE TIME WHEN YOU READ SUCH STATEMENTS THE UNDERLYING
RULES, REGULATIONS AND/OR DECISIONS MAY NO LONGER BE CONTROLLING OR
PERSUASIVE AS A MATTER OF LAW OR INTERPRETATION. |
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