NASD Regulation today announced a disciplinary settlement in which it fined Tower Square Securities, a subsidiary of Citigroup with 700 brokers, $200,000 and ordered the firm to make $4.3 million in restitution to a Louisiana Public School System's employees deferred compensation plan.
Additionally, complaints were filed against former Tower registered rep Kevin B. Dermody and his business partner, Randall J. Veselik.
The enforcement actions involve the mishandling of the investment portfolio of the school system's deferred compensation retirement plan.
The complaint filed against Dermody alleges that in July 2000 he entered into a contract to handle the deferred compensation plan for Jefferson Parish school system employees. At Dermody's direction, the plan liquidated its holdings of approximately $10.8 million in variable annuities, incurring surrender charges of more than $670,000. Funds of the annuity liquidation, along with additional plan contributions, were used by Dermody to purchase securities and insurance products issued by Hilltopper Enterprises, L.L.C., a company organized by Dermody and Veselik. A majority of plan funds invested with Hilltopper was lost through speculative trading. An independent audit of the plan as of June 30, 2001 revealed that liabilities to plan participants exceeded plan assets by more than $4.2 million.
Dermody is longer a rep at Tower Square Securities and was unavailable for comment.
"The mishandling of investment portfolios is serious misconduct and deserves meaningful and prompt sanctions," Mary L. Schapiro, President of NASD Regulation, Inc., said in a statement. "We are pleased that the school system is to receive full restitution in this case."
A spokesperson for Tower Square Securities said, “We are pleased to have this matter concluded and we will continue to work with the NASDR as we have been doing all along.”