LexisNexis Corporate & Securities Law Community 2011 Top 50 Blogs

Bon mots

"You can observe a lot just by watching." Yogi Berra

"We do not distain to borrow wit or wisdom from any man who is capable of lending us either." Henry Fielding, Tom Jones

"In our complex society the accountant's certificate and the lawyer's opinion can be instruments for inflicting pecuniary loss more potent than the chisel or the crowbar." United States v. Benjamin, 328 F.2d 854, 862 (2d Cir. 1964)

Failure To Supervise Sanctions Upheld

Dennis S. Kaminski, Exchange Act Rel. 65347, September 16, 2011

NASD sanctioned Kaminski for failure to supervise sales of variable annuities. He was suspended for eighteen months, fined $50,000 and ordered to requalify before acting in any capacity requiring qualification. The Commission rejected Kaminski's appeal.

Kaminsky supervised his firm's compliance department. He was also responsible oversight of operations and the firm's legal department.

In 2001 the firm consented to NASD sanctions related to supervisory procedures for variable annuity sales. That settlement required the firm to overhaul its compliance procedures as to annuity sales. As a result the firm established a formal review procedure for any "flagged" variable annuity transactions. In 2004 Kaminski received numerous memos and emails from a subordinate complaining that the compliance department was understaffed and that immediate action was required to remedy this. Kaminski also learned that the flagged annuity transactions were not in fact being reviewed promptly. In fact, for some period the firm simply stopped reviewing the flagged transactions. Kaminski admitted that he knew of staffing problems in the compliance department and the failure to promptly review flagged annuity transactions. There was conflicting testimony about whether Kaminski ordered that the flagged transactions not be reviewed.

The opinion focused on red flags indicating Kaminski's knowledge of the breakdown of supervisory procedures. Oddly enough, it did not stress, nor did it cite cases holding firm executives liable for supervisory failures unless they can establish an affirmative defense of both effective delegation and verification that the delegate is effective.