NASD Appeal - definition of associated principal.
Days between appeal and decision – 11 months, 10 days.
Days between last brief and decision – 8 months, 4 days.
Pages – 10.
Comment
The Commission sustained the NASD finding that respondent acted as a general securities principal while his registration was suspended between 2002 and 2004. The NASD barred respondent and fined his firm $15,000 and assessed costs of $4,141. Respondent was pro se.
Respondent claimed that the firm had another principal who was properly licensed. The Commission held that "[t]he fact that a member firm properly registers one principal who exercises managerial authority does not mean that other associated persons who act as principals need not be registered as principals."
This was a routine matter that involved application of long standing precedent. Under the circumstances eight months to issue an opinion seems excessive.
Key points
- The following conduct constituted association with a firm: supervision of a registered representative's 180 transactions; receipt of an override commission based on sales by a registered representative; attestation to the accuracy of the firm's annual audit reports; filing of a withdrawal form for the firm's registration in a state; filing an amendment to the firm's Form BD reflecting a previous NASD disciplinary action; amendment of the firm's CRD information listing himself as CEO of the firm; and signed and approved anti-money laundering procedures for the firm listing himself as program compliance officer.
- The NASD defines a principal as a person who is "actively engaged in the management of the [member firm's] investment banking or securities business, including supervision, solicitation, conduct of business, or the training of persons associated" with a member firm.
- Approving, signing, and filing required periodic financial reports, disclosure forms, and required compliance and supervisory procedures on behalf of a firm are management responsibilities that are to be performed by a principal.
- Every associated person who holds an enumerated position and who has managerial responsibilities must be registered as a principal.
- The firm was liable because a firm can only act through its agents and is accountable for the actions of its responsible officers.
Summary
In 2002 NASD suspended respondent from associating with his firm when he was not registered as a principal of the firm. During that time, he did the firm's bookkeeping, wrote checks on its bank account, and was solely responsible for supervision of the firm's salesman, prepared and filed the firm's FOCUS reports, filed an amendment to the firm's Form BD, and received compensation from the firm. Respondent and the firm were each fined $2,500 and respondent was required to requalify as a principal. If unable to requalify in 90 days, he was suspended as a principal until he did so.
Respondent took the above mentioned actions that rendered him a principal.
There is no reason to find that the NASD sanctions are excessive, oppressive or impose an unnecessary or inappropriate burden on competition. Absent a such a finding, the Commission must sustain the NASD sanctions. Here the sanctions are consistent with NASD Sanction Guidelines. The violations here were serious as they extended for almost two years. Further, the violations mirror those that resulted in his original suspension from association as a principal. During the two year period, respondent failed the principals examination three times. Finally, during the hearing, respondent demonstrated a cavalier attitude toward the principal registration requirements. It was respondent's obligation to make sure that only a properly registered individual acted as a principal of the firm.
