Sometimes I wonder if there is a secret plan to socially engineer smaller NASD firms out of business. When I look around our industry, I see independent/regional firms crushed under the weight of an ever-growing number of poorly drafted, unreasonable rules. And I read about fines and suspensions that seem solely designed to wound smaller firms.
Am I overstating the case? Consider the following three NASD disciplinary settlements.
One Whale and Two Small Fry
MONY Securities Corporation, AWC October 2006
The firm permitted unregistered individuals to act in a capacity requiring NASD registration. The firm failed to establish, maintain and enforce a supervisory system reasonably designed to achieve compliance with NASD rules that require persons who function as representatives to be registered as such with NASD.
MONY Securities Corporation: Censured; fined $20,000
Shields & Company and John Patrick Hughes, Jr. (Principal), OS October 2006
Acting through Hughes, the firm failed to have a properly registered municipal securities principal to supervise its municipal securities activities. Although not registered as a muni principal, Hughes was responsible for reviewing the firm's municipal transactions.
Shields & Company and John Patrick Hughes, Jr.: Censured; fined $25,000 jointly and several.
Tullett Liberty Brokerage, Inc., Richard Coppolino (Principal) and Anthony Arcabascio, AWC October 2006
The firm and Coppolino permitted Arcabascio, an unregistered, associated person, to be engaged in trading activity involving government securities, which required registration, and the firm paid him transaction-based compensation.
Tullett Liberty Brokerage, Inc.: Censured; fined $40,000 ($20,000 of which is joint and several with Coppolino)
Richard Coppolino: Fined $20,000 joint and several with the firm; suspended five business days in government securities principal capacity.
Anthony S. Arcabascio: Fined $10,000; suspended five business days in all capacities.
The Guessing Game
Essentially, the three cases cited above represent very similar violations — permitting unregistered persons to engage in registered capacities. The differences between them are who shoulders the blame. The only respondent named in MONY — a large insurance firm that was bought by AXA Financial Group in 2004 — is the firm itself. But in the other two cases, where the firms are small, individuals are named and fined. Why is that? Is there some unwritten rule that immunizes supervisors who work for the big firms?
Given the far greater resources available to a major firm such as MONY, why is that firm fined less than Shields/Hughes? And why was a fine imposed upon Hughes but none upon any principal at MONY? Similarly, why was Tullet Liberty fined twice as much as MONY? Finally, Coppolino and Arcabascio are both subjected to five-business-day suspensions — were no individuals at MONY similarly complicit?
The problem is there is no way of knowing. The NASD's decisions should be comprehensive enough that these questions would be unnecessary. Instead, we're left to guess at the reasoning.
Both the NYSE and the NASD publish detailed decisions governing contested hearings where both parties present evidence and argue their cases. Admirably, the NYSE also publishes both a squib and a second, more-lengthy decision for its settled enforcement cases. But the NASD does not. Instead, NASD posts online the briefest excerpts of such settlements, without any copies of the actual settlement documents or more expansive supplements added to the public record.
Wall Street participants have long feared that the industry's cops divide member firms into “large” and “small” camps. I think there's a mind-set at the NASD that “large” also means the “right sort,” and that “small” means the “bad sort.” If the NASD wishes to dispel the notion that it is biased against smaller members, then it should adopt the NYSE's policy. Unless, of course, it has something to hide.
* Please note that 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