NASD Slaps Brokerage Firm for Failure to Supervise Crooked Broker Working at Home
The NASD has long warned brokerage firms about their ongoing duties to monitor independent contractors, even those working at remote locations. The NASD put some teeth behind those warnings when it announced in a recent release sanctions imposed against LaSalle Street Securities, Inc. for failing to supervise Frank Devine, a former representative of the firm, who recently began serving a 13 year prison term after pleading guilty to federal wire and tax fraud charges for defrauding investors in a Ponzi scheme.
The NASD found that in June 1998, when LaSalle Street hired Devine, he disclosed a pending NASD investigation into the termination from his prior employment for unauthorized outside business activities. In September 1998, the NASD notified Devine that it intended to pursue disciplinary action against him. Notwithstanding this background, and knowing that Devine maintained a separate business account and conducted several outside businesses, LaSalle permitted Devine to work from his home with no on-site supervision.
In December 2002, the NASD finding that Devine sold viatical contracts without the knowledge or consent from his prior employer, suspended him for 90 days and fined him $34,825. Nevertheless, during his 6 year employment, LaSalle did not require any heightened supervision for Devine, and did not conduct a single inspection of his office. The NASD further found that LaSalle ignored numerous red flags over the years, such as plummeting production, and inconsistent disclosures about outside business activities.
The NASD determined that LaSalle failed to reasonably supervise Devine, and that LaSalle failed to establish an adequate supervisory system and procedures for supervising brokers working in small, geographically dispersed offices, including brokers with disciplinary histories.
The NASD fined LaSalle $200,000, ordered the firm to retain an independent consultant to establish adequate supervisory systems and procedures, and suspended the firm from hiring brokers with any disciplinary history until the firm implemented appropriate supervisory systems.
NASD is getting nastier. After their own failures NASD seems to be working hard to earn their spurs as a serious regulator again . They recently tried to permanently bar a rep (Ryan Henry) based on his admitted failure to keep his u-4 current, particularly his current mailing address.
Now, in my pettier days as a state field examiner I did think this was important information, but not so important as to bar a guy permanently. The SEC seems to agree.
During my last days in the field I found several cases where the rep apparently amended his u-4,; but compliance didn't forward that to CRD and presumably saved an additional filing fee. Alternatively, the local office cooked up an amended U4 just for me after I pointed out the incorrect address. You can't be too cynical.
On my very first exam I found a rep sending a family account to his neighnor so as to avoid his home address being on the account and the manager(?) viewing this as a family account, which it certainly was. So, addresses on u-4's are important. But while NASD labors under its inferioritry complex, remember even little things mean a lot.