Ryan Henry, a registered rep named in a customer arbitration complaint, was accused of committing fraud and breaching his fiduciary responsibility. The NASD decided to investigate. And that's where the straightforward part of this story ends.
In a letter dated March 17, 2004, the NASD requested information from Henry regarding the customer's complaint. The request was sent by certified mail, return receipt requested, to the home address listed for him in the Central Registration Depository (CRD). The certified mail receipt was signed by Henry's grandmother, Evelyn Linsenmaier, and returned to the NASD, but her signature was illegible.
For whatever reason, the NASD did not hear from Henry and sent him a second letter on April 6, 2004, again by registered mail, requiring that he respond in writing by April 20. In it, the NASD warned him that a continued failure to comply could result in disciplinary action.
In a third failed attempt to reach Henry, the NASD — this time using Federal Express — warned him that he would be suspended if he did not respond by Sept. 17, 2004. The NASD did not retain proof of the FedEx delivery, but the employee responsible for sending the package signed a declaration claiming that it went out and was not returned.
Next, the NASD sent Henry an overnight delivery and first-class mail on Sept. 23, stating that he had been suspended on Aug. 18, 2004 (though they meant Sept. 18). However, the NASD retained no proof of the overnight delivery, and the first-class envelope was returned. Five days later, the NASD sent the whole shebang out again with the corrected suspension date, but the regulator's records do not disclose proof of the overnight delivery and the mail was, again, returned. Six months later, Henry was barred from the industry, after — you guessed it — the mailed warning from the next level of Hell didn't go through.
On Oct. 4, 2005, Henry appealed the NASD's bar to the SEC. Henry introduced a notarized letter from his mother that his CRD address had been her home, and a telephone bill from February 2004 (one month prior to the first letter from the NASD) as proof of his new residence. All of which elicited a big “so what” from the SEC: Henry had an obligation to keep his records current.
Frankly, I thought that was the end of the line for Henry. However, the SEC refused to sustain the NASD's bar. The SEC seemed troubled by certain aspects of this case. Most dramatically, Henry's grandmother had died shortly after signing for the NASD's first letter. In support of his contention, Henry submitted a notarized letter from his mother that states that Linsenmaier had “apparently signed for a number of communications” from the NASD that were “discovered…while going through [Linsenmaier's] things after her death.” Henry also submitted his grandmother's death certificate, dated Oct. 27, 2004. Then there seems to be the whole question of NASD's somewhat shoddy record-keeping practices — missing receipts, incomplete records, etc.
While not an outright victory for Henry, the SEC at least asked the NASD to take another look at the bar to see if a one- to two-year suspension might be more appropriate, noting that NASD Sanction Guidelines allow for mitigating circumstances.
Let me add just one more surprise fact. It turns out that the customer arbitration was dismissed. Alas, poor Henry wasn't barred for a sales-practice violation. He wasn't barred for lying to the NASD. He wasn't even barred for refusing to cooperate with the NASD. In truth, he was barred because he failed to update his CRD file, and because his grandmother didn't forward his mail. Think about that. Does that make any sense at all? Of course not, but given whom you're dealing with, we have to hammer this one thought home: keep in touch.
For more on Henry's case, see this SEC opinion: Release No. 53957, June 8, 2006, http://sec.gov/litigation/opinions/2006/34-53957.pdf
Writer's BIO: Bill Singer is a practicing regulatory lawyer and the publisher of RRBDLAW.com