Upon losing a Senate race to Stephen Douglas in 1858, Abraham Lincoln described the experience, saying he was reminded of “that boy in Kentucky, who stubbed his toe while running to see his sweetheart. The boy said he was too big to cry, and far too badly hurt to laugh.”
The same can be said for NASD enforcement actions, which can flatten a registered rep's life savings and effectively bury his career. That's no laughing matter. Still, there are some cases in which the circumstances are so zany that even the prickliest observer can't help but snigger. I've included the strangest cases and biggest blunders of 2006 below.
Cut and Paste
One fellow literally cut a customer's signature from an original account application, physically pasted it onto an amended application, and then submitted the document for processing. Like what — no one would have noticed? Andrew Mark Stinson, AWC/November 2006
In connection with a life-insurance application, a member firm required that public customers appear for a personal-history interview. Apparently, finding this requirement rather inconvenient, one budding impresario requested that a co-worker impersonate the customer during the interview. Not willing to make a curtain call, the registered rep did not respond to NASD's questions about the matter and was barred. Sammy Battista, AWC/April 2006
First mistake: A registered rep forged a public customer's signature on a new account form. Second mistake: When his firm started asking questions, the rep claimed that the customer's fiancé signed the form with her approval. Third mistake: In an effort to provide verification for the forged signature, the rep impersonated the customer's fiancé over the telephone during a call to the firm. NASD's remedies for the mistakes: a fine and suspension. Steven Emil Ennis, AWC/September 2006
Attempting to open a brokerage account at his member firm (and apparently seeking to hide his beneficial ownership of same), one ingenious guy created and submitted a fictitious certificate of formation for a limited liability company. Not satisfied with that subterfuge, he went a step further and used the business filing number from another bona-fide limited liability company. Hoping to put one more deft touch on the transaction, he then replicated a “Filed” stamp from the New Jersey State Treasurer. Despite all these tidy details, his sham was uncovered — and he was fined and suspended. Peter J. Maldjian, OS/November 2006
Along similar lines, another registered rep received a $6,250 check from a public customer for investment purposes, but used the funds for his own benefit without the customer's authorization or knowledge. To prevent the customer from uncovering the theft, the rep created a false stock certificate for a non-existent company and delivered this handiwork to the client. Nice try, but no cigar (and let's toss in a bar for the effort). Harold Stephen Simpson, Sr, AWC/November 2006
God Bless America?
After his customers received rebate checks from his firm, one clever registered rep convinced his customers that under the “Patriot Act” they were obligated to pay him 10 percent of the rebate for his lost commissions or attorney fees. He managed to extract some $4,000 from his customers. Oh, he also managed to get a bar from the NASD. Jonathan Charles Raney, AWC/May 2006
A brokerage firm erroneously cut money orders (intended for the purchase of securities for customers) that were payable to one of its registered representatives. As you might have guessed, the rep cashed the orders. But, wait, there's more. This character then funneled the proceeds to another registered rep so that this second guy — a colleague — could pay off gambling debts. How did the second guy convince the first guy that this little trick would throw anyone off? Truly, I couldn't make this stuff up. Perhaps this mastermind will use the NASD-imposed bar to sort things out. Daniel Peter Ray, AWC/September 2006
Note: Offers of Settlement (OS) and Letters of Acceptance, Waiver and Consent (AWC) are entered into by respondents without admitting or denying the allegations, but consent is given to the described sanctions and to the entry of findings.
Writer's BIO: Bill Singer practices law at Stark & Stark, and is the publisher of RRBDLAW.com