Pitfalls when buying a BD
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The Securities Industry Commentator™
<?:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />New York, New York
June 8, 2005
Nationally-known regulatory lawyer Bill Singer analyzes the just-released SEC opinion In the Matter of Davrey Financial Services and Pravin R. Davrey. http://rrbdlaw.com/2005/0506davrey.htm (an appeal of NASD censure, fine, and suspension).
The Davrey appeal presents an interesting examination of how structuring --- or mistructuring --- the purchase of shares in a broker-dealer can cause record-keeping and Net Capital problems. Here, the buyer seemed to think that the transaction didn’t need to be carried on the firm’s books because it was a deal between him (personally) and the selling shareholders. Trouble is, the NASD and SEC didn’t agree. See how a “contingency” clause set off an avalanche of problems.
Additionally, Mr. Davrey appeared on a local cable television show. Ever wonder if anyone watches these programs? Well, here it appears that it wasn’t much, if any, of an audience. Mr. Davrey pitched his options program and despite his best efforts, not a single account was opened as a result of his appearance. You heard of the maxim: No harm, no foul? Guess what. The NASD and SEC don’t follow that rule. They unloaded on the firm and the individual for not following a host of advertising regulations.
Finally, this appeal presents a textbook example of why lawyers tell their clients never to guess when they don’t know the answer. See what happens when someone says one thing, then another, and yet another. If only he had simply consistently answered “I don’t recall.”
RRBDLAW.com is a leading securities-industry legal/regulatory website. The content is published by Bill Singer, a veteran Wall Street regulatory lawyer who represents both the industry and the public.