Liar, Liar!
As Martha Stewart found out recently, lying to investigators may land you in worse trouble than whatever it is they are investigating. NASD members should take note. Recent NASD Panel decisions confirm that lying to the NASD could have severe consequences.
For example, in Department of Enforcement v. D.M.W., Amended Hearing Panel Decision, NASD Office of Hearing Officers Disciplinary Proceeding, No. C06030035 (October 12, 2005), an NASD examiner, during a routine examination, requested a copy of a Management Agreement between the brokerage firm and its holding company. After several requests, a Management Agreement, dated August 1, 2002, was provided. But the examiner discovered an email dated November 5, 2002 appearing to reflect that D.M.W., an officer, director, and owner, was directing the firm's compliance officer to arrange to have the Management Agreement typed up, executed and backdated. At the hearing, D.M.V. testified that he intended the e-mail to be a joke to "jerk [the examiner's] chain." The Panel did not understand how the email could be interpreted as humorous or calculated to anger the examiner, and instead found it more likely that D.M.W. realized that the original Management Agreement had expired, and that a new Agreement should have been in place.
The Panel found that the email was an attempt to mislead the NASD staff, a violation of NASD Conduct Rule 2110. As a sanction, D.M.W. was barred from associating with any member firm in any capacity for misleading NASD staff in violation of Conduct Rule 2210.
By the way, the defense - "I was just joking" - is rarely successful. It reminds me of Don Howard, a Minnesota businessman who hired a man to murder his wife. After the murder, Howard was an immediate suspect because he had, unsuccessfully tried to hire several people to commit the murder. His defense - "I was just joking." He was quickly convicted.
