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Most NYSE Findings Upheld–Bar Sustained

Janet Gurley Katz, Exchange Act Rel. 61449, February 1, 2010

Time since appeal –1 year 3 months 8 days
Time since last brief – 10 months, 29 days

NYSE found that Katz (a former registered rep) engaged in host of violations. Among other things, NYSE found she: made unauthorized transfers of customer funds to accounts of other customers; made material misstatements to customers; made unsuitable transactions in customer accounts; engaged in unauthorized trades; exercised discretion in accounts without written authorization; and entered false information on customer new account forms. NYSE permanently barred her from association with any member.

On appeal the Commission sustained the findings relating to: unauthorized transfers between customer accounts; making material misstatements to a customer about transactions in his account statement; unsuitable recommendations; unauthorized trades; exercising discretionary authority without written authorization as to some, but not all customers found by NYSE; and entering false information on one customer's new account documents (but not all customers as found by NYSE). Needless to say, the Commission found the violations both extensive and egregious and sustained NYSE's bar.

The defense focused on the legitimacy of NYSE's fact finding. This of course rarely succeeds as the Commission defers to initial fact finders and their credibility based findings. The Commission noted that it is no defense to a charge of making unsuitable recommendations that the trades resulted in gains for the customer. Further, a client who is willing to take some risk may still have unsuitable trades recommended. As the Commission noted, "A client's ... desire for risk does not relieve a registered representative of the obligation to tailor recommendations to each customer's financial profile."

This case raises no difficult issues. There is no reason why it should have taken the Commission more than fifteen months to render a decision.