Time between appeal and decision - 1 year, 1 month, 9 days.
Time between last brief and decision - 10 months, 2 days.
Pages - 16
Summary
The NASD found that the firm and its president violated MSRB rules. The firm was fined 30,000 and $10,000 jointly and severally with the president. The president was fined $20,000 and 10,000 jointly and severally with the firm. The Commission upheld some of the findings of violations and reversed others.
The NASD found violations of Rule G-37, the "pay to play rule" which prohibits engaging in municipal securities business within two years of making contributions. The NASD also found violations pertaining to record keeping concerning political contributions. The charges involved a real estate development firm owned by the president of the brokerage firm that shared office space with the broker and made campaign contributions through checks signed by the president. Some of the persons receiving contributions sat on a Louisiana state commission that was required to approve any bonds issued by the state or any of its political subdivisions. Counsel advised the president that such contributions would not bar the securities firm from underwritings for political subdivisions as opposed to the state commission.
The NASD attributed the contributions to the president and his firm even though they did not formally make them. The Commission upheld this finding, noting that where a municipal finance professional signs checks or authorizes contributions to officials personally, the contributions should be attributed to the individual.
The Commission overturned the findings of the pay to play rule violations because the contributions were not made to an "official of an issuer" as defined in the rule. This was because the members of the state commission did not "possess the requisite authority to influence the outcome of the hiring of a dealer or financial advisor for municipal securities business by a political subdivision issuer." It held that in order to be subject to the rule, the official was required to have the authority to appoint persons responsible for the selection of the securities dealer and that ability to influence, standing alone was insufficient.
The Commission encouraged the MSRB to consider amending the rule to prohibit the type of conduct here due to its concerns that the conduct raised issues of possible improper influence, although it noted there was no evidence of that here.
The Commission upheld the finding of record keeping violations. MSRB rules require that municipal securities dealers keep records of contributions, whether direct or indirect. Respondents argued that the firm making the contributions kept records, and that it was not necessary to make a separate duplicate record on the books of the securities dealer. The Commission rejected this argument, noting that the NASD had no examination authority over the books of the affiliate.
The Commission rejected Respondents' claim that the Equal Access to Justice Act applies to proceedings of a self regulatory organization such as the NASD.
Finally, the Commission upheld the sanctions that related to the books and records violations it sustained the NASD fines, namely $20,000 against the firm, of which $10,000 was joint and several with the president. The fines exceeded those set forth in the NASD guidelines for non-egregious cases. Respondents did not address the sanctions in their briefs.
Comment
The Commission opinion offers little explanation of why the fines were appropriate, noting simply that the NASD did not impose other sanctions. The opinion did not explain why a departure from the NASD guidelines was appropriate, other than to recite that the rather banal claim that the public interest requires appropriate sanctions. It did not find that the conduct was egregious. This reasoning obviously begs the question. There is really no explanation of why the NASD sanctions were appropriate other than the Commissions ipse dixit conclusion that they were. Unlike some recent Commission decisions that offer real explanations and discussion of sanctions, this one reverts to the style of decision that has caused the D.C. Circuit no little impatience with the Commission's articulation of its sanction decisions.
This facts of this case were not disputed. It involved a straightforward interpretation of a MSRP rule. So, why did it take the Commission more than a year to rule on this hardly earth shattering case?
