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NASD Regulatory & Compliance

ALERTNASD Reminds Members Of ObligationsUnder The Free-Riding And WithholdingInterpretation

National Association of Securities Dealers, Inc. Volume 11, Number 4 December 1997

NASD Regulation, Inc., is remindingmembers of their obligations under the Free-Riding and WithholdingInterpretation, IM-2110-1 (Interpretation)with respect to allocations of hot issuesto venture capitalists. Paragraph (b)(4)of the Interpretation restricts sales of hotissues to certain persons affiliated with“a bank, savings and loan institution,insurance company, investmentcompany, investment advisory firm orany other institutional type account(including, but not limited to, hedgefunds, investment partnerships, invest-ment corporations, or investmentclubs).” 1 A venture capitalist falls within

the scope of paragraph (b)(4) when act-ing as a senior officer of an “institutionaltype account” or otherwise is a personwho may influence or whose activitiesdirectly or indirectly involve or arerelated to the function of buying or sell-ing securities of an “institutional typeaccount.” This type of account includes,among others, investment partnershipsand investment corporations, which arefrequently used by venture capitalists.Members should ensure, therefore, thatsales of hot issues to venture capitalists

(Continued on page 3)

YEAR 2000…Will You Be Ready?As the year 2000 quickly approaches, itis absolutely critical that every introduc-ing and clearing firm ensure that theircomputer systems are Year 2000 com-pliant. Firms should proactively seekwritten assurances and certificationsfrom all automated service providersthat the systems they use will workproperly in the next millennium. Forintroducing firms, this includes theirclearing firm.

When the date changes to January 1,2000, it is imperative that computers inevery industry correctly identify “00” as the year 2000, rather than 1900.

Member firms that use automated pro-grams to satisfy their regulatory andcompliance responsibilities shouldensure that those systems are able tofunction on and after January 1, 2000.

Be aware that computer failures relatedto Year 2000 problems generally willnot be considered a defense to violationsof firms’ regulatory or complianceresponsibilities or a mitigation of sanc-tions for such violations.


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National Association of Securities Dealers, Inc. December 1997

1 Cover Stories

NASD Reminds Members OfObligations Under The Free-Riding And WithholdingInterpretation

YEAR 2000…Will You BeReady?

NASD Regulation InstitutesFirm Quote ComplianceProcedures

NASD Interprets SEC OrderHandling Rules, NASD LimitOrder Protection Rules, AndMember Best ExecutionResponsibilities

16 Continuing Education/Testing/Qualifications

Securities Industry/RegulatoryCouncil On Continuing Education RecommendsChanges To IndustryContinuing Education Program

NASD Regulation ProvidesTesting & ContinuingEducation Information

22 Dispute Resolution

NASD Seeks FurtherComment On Injunctive Relief Rule

24 Municipal Securities

Municipal Securities—Transaction Reporting

26 Advertising

“Ask The Analyst”

28 Regulation

SEC Approves AnAmendment To The ThreeQuote Rule; Grants ExemptiveAuthority To The Staff OfNASD Regulation

SEC Provides Guidance ToNASD Members RegardingThe Use Of Average Price AndMultiple CapacityConfirmations

29 The Internet

What’s New On The NASDRegulation Web Site?

Internet Provides SuccessfulMechanism For CustomerComplaints And RegulatoryTips

31 Regulatory Short Takes

Market Regulation RemindsMember Firms Of Their ShortInterest Reporting Obligations

Disclosure ConversionProcess Moving Forward

OATS Update

Order Disciplinary HearingProcedures Guide

32 Violations

21 Brokerage Firms And ABank Fined $325,000 ForViolating MSRB Rules

NASD Regulation Fines Mayer& Schweitzer $200,000 ForFailure To Provide BestExecution As Well As Record-Keeping And SupervisoryViolations

Significant Actions BroughtAgainst Firms

34 NASD Disciplinary Actions

CONTENTS

YEAR 2000…Will You Be Ready?, from page 1

If you haven’t already done so, yourfirm should initiate a Year 2000 Projectto determine the scope of this problemat your firm; develop a strategy,methodology, and a detailed plan for thecorrection of the problem; and retire,replace, or convert applications toensure they are Year 2000 compliant.Your scope should apply to all informa-tion technology systems (internal andexternal) used to conduct a securitiesbusiness and other business support sys-tems (e.g., telephone, power, elevators).

To ensure that members are on a courseto make their systems and applicationsYear 2000 compliant, NASDRegulationSM requires all members toreturn a completed “Year 2000Compliance Survey” to NASDRegulation no later than January 31,1998. Member firms that have returneda completed “Year 2000 Survey” to theNew York Stock Exchange are exemptfrom this requirement at this time. Eachmember should have received this sur-vey along with NASD Special Notice to

Members 97-96. This NASD Regulationsurvey can also be downloaded off ofthe Year 2000 Web Pages on theNASDR (www.nasdr.com) and NASD(www.nasd.com) Web Sites.

Day-by-day, resources are becomingmore and more difficult to secure andmore costly to obtain. Remember, thedeadline is December 31, 1999, andthere are no extensions.

The time to act is NOW! ❏

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NASD Regulatory & Compliance Alert December 1997

who are restricted under the Interpretationare made consistent with the Interpretation.

Persons restricted under paragraph(b)(4) are generally referred to as condi-tionally restricted persons. As such, theymay purchase hot issues from a memberonly if the member is “prepared todemonstrate that the securities were sold to such persons in accordance withtheir normal investment practice, thatthe aggregate of the securities so sold is insubstantial and not disproportionate in amount as compared to sales to mem-bers of the public and that the amountsold to any one of such persons is in-substantial in amount.”2

In 1994, the Securities and ExchangeCommission (SEC) approvedamendments to the Interpretation which,among other things, included an exemp-tion for venture capital investors whomeet certain enumerated criteria. Theventure capital provisions of paragraph(h) of the Interpretation are not a generalexemptive provision for venture capitalinvestors. In fact, these narrow exemp-tive provisions were adopted because,under most circumstances, membersotherwise would be prohibited from selling hot issues to venture capitalists.The venture capital investor provisions

included in paragraph (h) of theInterpretation allow venture capitalinvestors to purchase a hot issue securityto maintain their percentage ownershipinterest in an entity, notwithstanding thatsuch venture capital investor may berestricted under the Interpretation.

Cancellation Safe HarborNASD Regulation is also remindingmembers of the scope of the cancellationsafe harbor provisions of paragraph(a)(3). Specifically, paragraph (a)(3)provides that it shall not be “a violationof the interpretation if a member whichmakes an allocation to a restricted per-son or account of an offering that tradesat a premium in the secondary market,cancels the trade for such restricted person or account, prior to the end of the first business day following the dateon which secondary market tradingcommences and reallocates such secu-rity at the public offering price to anon-restricted person or account.”3 TheSEC order adopting the cancellation safeharbor4 and the related NASD Notice toMembers,5 both stated that the cancella-tion provisions were intended to remedyconcerns caused by inadvertentviolations of the Interpretation that arecorrected by the member making thedistribution. Thus, paragraph (a)(3)

permits members to allocate securities torestricted persons and subsequently real-locate such hot issue securities to otheraccounts within the time limitsprescribed by the safe harbor only to theextent that such reallocation is to rem-edy an inadvertent violation of theInterpretation.6

Questions concerning this issue shouldbe directed to Gary L. Goldsholle,Office of General Counsel, NASDRegulation, at (202) 728-8104. ❏

1 IM-2110-1(b)(4).2 IM-2110-1(b)(5).3 IM-2110-1(b)(3).4 59 Fed. Reg. 64455, 64458

(December 14, 1994).5 NASD Notice to Members 95-7

(February 1995).6 This sentence has been modified from the

Member Alert dated November 21, 1997,

to more clearly define the scope of

paragraph (a)(3).

Free-Riding And Withholding Interpretation, from page 1

A member backs away from a tradewhen it does not comply with SEC Rule11Ac1-1(c). That Rule requires a marketmaker to execute an order “presented”to it at a price at least as favorable as itspublished quotation up to its publishedquotation size. A market maker’s oblig-ation to fill an order begins at the timethe order is “presented,” regardless ofhow the order is transmitted to the mar-ket maker. Exceptions to Rule 11Ac1-1(Rule 11Ac1-1 or the firm quote rule)exist only if: (i) the market makerrevises its quoted price or size to TheNasdaq Stock MarketSM prior to presen-tation of an order; or (ii) the market

maker has effected or is in the processof effecting a transaction at the time anorder is presented and, immediatelyupon completion of that transaction,communicates a revised quotation toThe Nasdaq Stock Market. Conduct thatviolates Rule 11Ac1-1 may also violateNASD Conduct Rule 3320 and NASDMarketplace Rule 4613(b), whichrequire a market maker to trade at itsquotation and up to its quotation sizewhen presented with an order.

To ensure that members fully complywith Rule 11Ac1-1, NASD Regulationhas developed an automated

surveillance system (the Firm QuoteCompliance System or FQCS) to permit the resolution of backing-awaycomplaints on a real-time basis. FQCSwill also, in the absence of complaints,identify firms that demonstrate a patternof non-response to SelectNetSM liabilityorders. By using the Firm QuoteCompliance System, NASD Regulationaddresses backing-away complaints ona real-time basis and resolves suchcomplaints with a contemporaneoustrade execution, if warranted, and looks,on a historical basis, for patterns ofbehavior indicative of potentialviolations of Rule 11Ac1-1.

NASD Regulation Institutes Firm Quote Compliance Procedures


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NASD Regulation Institutes Firm Quote Compliance Procedures, from page 3

In light of the establishment of the FirmQuote Compliance System, NASDRegulation’s Market RegulationDepartment has instituted procedures toimmediately address complaints duringthe trading day. Any potential backing-away complaint should be communicatedto the Market Regulation Departmentwithin five minutes of the alleged back-ing-away by calling (800) 925-8156. If acomplaining firm does not contact thestaff within five minutes, it will be diffi-cult for the staff to obtain a contempora-neous trade execution, if warranted,from the market maker.

Firms also are encouraged, but notrequired, to contact the other firm toseek resolution of their complaint. Firmsthat contact the other side first will notbe held to the five-minute time period of contacting the Market RegulationDepartment. However, they must con-tact the other side within five minutesand, if there is no resolution, they must contact the Market RegulationDepartment immediately after their contact with the other firm.

Although the staff will review andinvestigate complaints which are faxedor received by telephone after the five-minute period, the staff may not be ableto assist in obtaining a contemporaneoustrade execution for those complaints.Nevertheless, failure of the complain-ing firm to contact the market makeror the staff within five minutes of thealleged backing-away is not, and hasnever been interpreted by NASDRegulation as, a defense to a backing-away violation.

In processing the alleged backing-awaycomplaints and other potential rule vio-lations identified by the Firm QuoteCompliance System, NASD Regulationwill not pursue immediate disciplinaryaction for an individual backing-awaycomplaint in which a contemporaneoustrade execution is obtained or offered.However, the staff will keep a record of,and gather information concerning, suchincidents to determine if a firm has

demonstrated a pattern of non-compli-ance with the firm quote rule. Thus,these violations could result in discipli-nary action. The staff will investigateindividual instances of backing-awayand consider disciplinary action if thestaff believes that a contemporaneousexecution is warranted, but the mar-ket maker refuses to provide the fillupon the staff’s request.

Members are also encouraged to readcarefully the applicable sections of the SEC Section 21(a) report, whichcontains a discussion of a marketmaker’s obligations under Rule 11Ac1-1 as well as specific situationswhich the SEC considers to beviolations of the firm quote rule.Following are some guidelines that market makers should be aware of:

1. Cancellation of PreferencedSelectNet Liability Orders. The factthat a preferenced SelectNet order iscanceled by the order entry firmbefore the three-minute time perioddoes not eliminate a firm’s firm quoteobligation with respect to that orderwhile it was “live.” Patterns of delayin filling liability orders may result indisciplinary action for violation ofRule 11Ac1-1. A market maker’sobligation to fill an order begins whenthe order is presented, not upon expi-ration of the three-minute time period.

2. Failure to Act on a PreferencedSelectNet Liability Order. The factthat preferenced SelectNet liabilityorders may have scrolled off thescreen on the Nasdaq Workstation ter-minal is not an exception to Rule11Ac1-1. Members should take what-ever steps they deem appropriate toensure that preferenced liabilityorders received through SelectNet aremonitored and responded to in con-formance with the firm quote rule.

3. No Trade-Ahead Exception forSOES Executions Received Aftera Preferenced SelectNet LiabilityOrder. A trade-ahead exception willnot be permitted for Small Order

Execution SystemSM (SOESSM) execu-tions received after presentment of apreferenced SelectNet liability order.As stated in the SEC’s Section 21(a)report, “[b]ecause SOES executionsare automatic and instantaneous, amarket maker could not have been in the process of executing a SOESorder that was received after aSelectNet order.”

4. No Automatic Trade-AheadException. A trade-ahead exceptionfor trades that are reported after thepresentment of a liability order willnot be permitted if a market makerexecutes a trade absent proof, such asthe time of order entry, that the mar-ket maker was in the process of exe-cuting the order prior to presentmentof the preferenced SelectNet liability.Additionally, the market maker mustimmediately update its published quo-tation subsequent to the execution.

5. Late Quote Update. A quote updatewithout any accompanying tradereport must occur prior to, or simulta-neous with, the presentment of aSelectNet liability order or telephoneorder to be considered an exception toRule 11Ac1-1.

6. System Problems, ExtremeWeather, Flood of SelectNetLiability Orders. Situations such as firm system problems, extremeweather conditions, and a flood ofother SelectNet orders surrounding a SelectNet liability order may beviewed as mitigating factors, but notexceptions, to Rule 11Ac1-1.

On July 16, 1997, the SEC sent a letterto the NASD providing guidance on avariety of firm quote compliance issues.(The NASD’s July 7, 1997 inquiry andthe SEC’s July 16, 1997 letter inresponse are presented on pages 6-11 ofthis newsletter.) Based on the guidanceprovided in the SEC’s letter, the staffwill continue to analyze the SOES/SelectNet “double-hit” issue on a facts-and-circumstances basis and will con-tinue to review firms that demonstrate a pattern of non-responsiveness to

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SelectNet liability orders after present-ment. In addition, the SEC’s letterimplicitly reiterates the SEC staff’sposition that a preferenced SelectNetorder is deemed to be presented to therecipient of that order for purposes ofRule 11Ac1-1 upon delivery of thatorder to the firm. Indeed, the SEC’s let-ter reaffirms statements made in theSEC’s Section 21(a) report that, “[t]hefirm quote rule is triggered when anorder is ‘presented’ to the market maker.Because all directed SelectNet orders

are delivered electronically to a particu-lar market maker, the presentment of anorder is readily ascertainable.”

Member firms should discuss the itemsset forth in this article and the SEC’s let-ter dated July 16, 1997, with theirtraders and remind them of their obliga-tions under Rule 11Ac1-1. Memberfirms should also implement adequatewritten supervisory procedures to detectand deter potential firm quote violations.Failure to have an adequate supervisory

system in place may result indisciplinary action. In addition, firmsshould ensure that they have adequatestaff and/or systems technology toimmediately respond to SelectNetorders.

Questions regarding this informationmay be directed to NASD Regulation’sMarket Regulation Department, at (800)925-8156. ❏

Regarding Any Items In This PublicationIf you have further questions orcomments, please contact either the indi-vidual listed at the conclusion of an itemor Rosa A. Maymi, Editor, NASDRegulatory & Compliance Alert (RCA),1735 K Street, NW, Washington, DC20006-1500, (202) 728-8981.

Regarding NASD Disciplinary Actions &HistoriesIf you are a member of the media, pleasecontact NASD Media Relations at (202) 728-8884. To investigate the disci-plinary history of any NASD-licensed representative or principal, call our toll-free Public Disclosure Hot Line at (800) 289-9999.

Regarding Subscriptions Questions,Problems, Or Changes

Member Firms

Please note that the compliance directorat each NASD member firm receives acomplimentary copy of the RCA, as doeseach branch office manager. To changeyour mailing address for receiving eitherof these complimentary copies of RCA,members need to file an amended Page 1of Form BD for a main office change orSchedule E of Form BD for branchoffices. Please be aware, however, thatevery NASD mailing will be sent to thenew address. To receive a blank FormBD or additional information on address

changes, call NASD Member Services at(301) 590-6500. For additional copies($25 per issue, $80 per year), please contact NASD MediaSourceSM at (301) 590-6142.

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To subscribe to RCA, please send a checkor money order, payable to the NationalAssociation of Securities Dealers, Inc., toNASD MediaSourceSM, P.O. Box 9403,Gaithersburg, MD 20898-9403 or, forcredit card orders, call NASD Media-Source at (301) 590-6142. The cost is $25 per issue or $80 per year. RCAsubscribers with subscription problems or changes may contact NASD at (202) 728-8302.

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Other recipients of RCA who wish tomake an address change can send inwriting your correct address with a label(or copy of a label) from our mailing thatshows the current name, address, andlabel code. Send your request to: NASD,Administrative Services, 1735 K Street,NW, Washington, DC 20006-1500.

©1997, National Association ofSecurities Dealers, Inc. (NASD). Allrights reserved. NASD and NASDMediaSource are registered servicemarks of the National Association ofSecurities Dealers, Inc. NASD

Regulation is a service mark ofNASD Regulation, Inc. CRD is a reg-istered service mark of NASDRegulation, Inc. and the NorthAmerican Securities AdministratorsAssociation, Inc. (NASAA). NAqcess,Nasdaq, Nasdaq National Market,OTC Bulletin Board, and NasdaqWorkstation are registered servicemarks of The Nasdaq Stock Market,Inc. PORTAL, SOES, FIPS,SelectNet, The Nasdaq StockMarket, The Nasdaq SmallCapMarket, and Nasdaq Workstation IIare service marks of The NasdaqStock Market, Inc.

No portion of this publication may bephotocopied or duplicated in anyform or by any means except asdescribed below without prior writtenconsent from the NASD. Members ofthe NASD are authorized to photo-copy or otherwise duplicate any partof this publication without charge onlyfor internal use by the member andits associated persons. Nonmembersof the NASD may obtain permissionto photocopy for internal use onlythrough the Copyright ClearanceCenter (CCC) for a $5-per-page feeto be paid directly to CCC, 222Rosewood Drive, Danvers, MA01923.

NASD Regulatory & Compliance Alert Information

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In the following article, the NASD, afterconsultation with staff of the SEC, isproviding interpretive advice regardinga member’s best execution obligationswhen handling a customer order, espe-cially in light of the SEC’s OrderHandling Rules and the NASD’s LimitOrder Protection Rules. The Questionsand Answers that follow are an attemptto provide members with answers tocompliance questions raised followingthe implementation of the new OrderHandling Rules.

In its release adopting and amending thenew and amended SEC Order HandlingRules, Rule 11Ac1-4 and Rule 11Ac1-1,the SEC made specific statementsregarding the best execution of customerorders. Specifically, the SEC stated that when a market maker holds anundisplayed limit order priced betterthan the quote, and it subsequentlyreceives a market order on the oppositeside of the market from the limit order,it is no longer appropriate for the marketmaker to execute the market order at thepublished quote and the limit order at itslimit price. The market maker must passalong the price improvement of the limitorder to the market order. The NasdaqStock Market has received a number ofquestions regarding NASD memberfirm obligations to obtain best executionof customer orders in light of this state-ment. Nasdaq and NASD Regulationhave discussed various best executionscenarios as detailed below with theSEC.

In using this Q & A as a tool to developa member’s policies regarding its bestexecution obligations, it is important tonote that the application of best execu-tion concepts necessarily involves a

“facts and circumstances” analysis.Depending upon the particular set offacts surrounding an execution, actionsthat in one set of circumstances maymeet a firm’s best execution obligation,may not meet that standard in anotherset of circumstances. It should also benoted that the best execution obligationis an obligation that evolves as rules andsystems change.

Thus, if Nasdaq were to amend its LimitOrder Protection Rule, a firm’s best exe-cution obligations will likely change aswell.

In addition, it should be noted that thediscussion that follows relatesprincipally to the handling of orders inNasdaq securities (National Market andSmallCap) in light of the NASD’s LimitOrder Protection Rule, IM-2110-2.However, because the NASD LimitOrder Protection Rule (Manning) onlyapplies to Nasdaq securities, the limitorder protection requirements discussedbelow do not necessarily apply to over-the-counter equity securities that maytrade in the NASD’s OTC BulletinBoard®. Of course, members continue tohave best execution obligations for thesesecurities. The NASD continues to eval-uate best execution and limit order han-dling obligations for such securities andwill provide information regarding afirm’s obligations in a separatedocument at a future date.

Separately, we note that limit order pro-tection for over-the-counter executionsin exchange-listed securities is governedby NASD Rule 6440 and members con-tinue to have best execution obligationsfor those securities as well.

I. Treatment Of Orders ReceivedFrom Another Member

Question 1: Basic Obligation

• Nasdaq Inside Market:10 - 10 1/2 10 x 10

• Market Maker A (MMA) holds customer limit to buy 1,500 sharesat 10 1/4.

• The customer requests that this ordernot be displayed.

• MMA receives a market order to sell1,000 shares from another customerthrough its internal order delivery andexecution system.

• What must MMA do?

Answer 1:

Under best execution principlesdiscussed in the SEC’s AdoptingRelease, market makers holding undis-closed limit orders must execute incom-ing market orders at the limit orderprice. Thus, MMA must execute themarket order at 10 1/4, the price of theundisplayed limit order. MMA may exe-cute the market order against the limitorder or against its own inventory.However, if it fills the market order outof its own inventory, the Manning Rulerequires that MMA protect the limitorder at its price. Therefore, the limitorder would also have to be executed atits price. The remaining 500 shares ofthe limit order would continue to resideundisplayed on MMA’s book.

NASD Interprets SEC Order Handling Rules, NASD LimitOrder Protection Rules, And Member Best ExecutionResponsibilities

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Question 2: System Orders


• MMA holds a customer limit order tobuy at 10 1/4 for 1,500 shares that isnot displayed.

• MMA receives a customer marketorder to sell 1,000 shares fromanother broker/dealer throughMMA’s automated order delivery andexecution system.

• At what price should the limit andmarket orders be executed?

Answer 2:

Even though the order is from anotherbroker/dealer, because the other firmhas routed its order with the under-standing that MMA will provide auto-mated executions for that broker’s customer orders and thereby providebest execution through MMA’s system,MMA must match (as principal or asagent, as explained in Answer 1, above)the 1,000-share customer market orderagainst 1,000 shares of the undisclosedcustomer limit and execute at 10 1/4.The remaining 500 shares of the 10 1/4limit order remains undisclosed onMMA’s files. The same rationale formatching the market order against thelimit order would apply if the customerorder had been routed to MMA throughNasdaq’s Advanced ComputerizedExecution System (ACES®) facility.

Question 3: Phone Orders - MarketMaker And Order Entry Firm Have A Relationship


• MMA holds an undisclosed customerlimit order at 10 1/4 for 1,500 shares.

• MMA is quoting publicly 10 bid.

• Broker/dealer B (BD-B) telephonesMMA to sell 1,000 shares at the

market for a customer. MMA has an arrangement with BD-B with theunderstanding that MMA will provideBD-B’s customer orders with best exe-cution, such as part of a payment fororder flow, reciprocal, or correspondentarrangement.

• What is MMA’s obligation to broker/dealer B and to the limit order to buy?

Answer 3:

Even though the order is from anotherbroker/dealer, MMA must match 1,000shares of BD-B’s customer orderagainst the undisclosed limit order of 101/4, because MMA has an arrangementunder which it has implicitly or explic-itly undertaken to provide best executionto BD-B’s customer orders. MMA willexecute 1,000 shares of the marketorder and the limit order at 10 1/4.

However, because the Limit OrderDisplay Rule, Rule 11Ac1-4, has notbeen fully implemented as of the date ofthis document, limit orders received by amarket maker may not yet be reflected inthe market maker’s quote. Consequently,it may be difficult for a market maker toquickly access information regarding thelimit order at a better price that it holdsat the time the telephone order isreceived. Accordingly, until such timethat all Nasdaq stocks are subject toRule 11Ac1-4 and thus are likely to bereasonably accessible to the trader, theNASD will not take regulatory actionagainst market makers that fail to pro-vide the undisplayed limit order price tothe execution of telephone orders thatthey receive in any Nasdaq stocks duringthe phase-in period. Once all Nasdaqsecurities are subject to Rule 11Ac1-4,members will be expected to providetelephone orders, except as detailedbelow, the benefit of superior limit orderprices, whether displayed or not.

Question 4: Phone Orders - MarketMaker And Order Entry Firm Do NotHave A Relationship


• MMA holds an undisclosed customerlimit order at 10 1/4 for 1,500 shares.

• MMA is quoting publicly 10 bid.

• Broker/dealer B telephones MMA to sell 1,000 shares at the market forBD-B’s own account where MMAhas no agreement or understanding to treat BD-B’s orders as customerorders or otherwise provide them with best execution.

• What is MMA’s obligation tobroker/dealer B and to the limit orderto buy?

Answer 4:

MMA may execute BD-B’s market orderto sell at MMA’s published quote of 10.MMA does not owe a best executionobligation to a non-customer where nounderstanding or expectation of treat-ment as a customer has been reached byMMA and BD-B. Broker/dealers are notconsidered customers for purposes ofthis obligation.

If MMA executes BD-B’s order at 10,MMA, however, has traded through thecustomer limit order it holds. Under theManning Rule, therefore, MMA mustexecute 1,000 shares of the limit order itholds. Under the present interpretationof Manning, MMA must execute 1,000shares of the customer limit order at 101/4 or better, because 10 1/4 is the priceat which the limit order was held. MMA,of course, may choose to give the mar-ket order customer the price of the limitorder, but it is not currently required todo so. The NASD’s staff is presentlyevaluating whether to propose to theNasdaq Board a change to the ManningRule that would require a member toprovide price improvement to the limitorder in this situation.

Question 5: Rounded Orders


• MMA holds a customer limit order to buy a Nasdaq stock at 20 5/32 for2,000 shares. MMA changes its quoteto 20 1/8 for 2,000 shares to reflectthe rounded price of the customerlimit order.

• MMA receives a market order to sell2,500 shares.

• At what price must the market andlimit orders be executed?

Answer 5:

MMA must execute the customer limitorder and 2,000 shares of the marketorder at 20 5/32, even though itsdisplayed quote was rounded to 20 1/8.The execution must occur at the actuallimit order price that MMA held.

Question 6:


• MMA holds a customer limit order tobuy at 10 1/4 for 1,500 shares that isnot displayed.

• MMA receives a customer limit orderto sell 1,000 shares at 10 1/8.

• At what price(s) should the limitorders be executed?

Answer 6:

The SEC’s best execution discussion inthe Adopting Release did not discuss thecrossing of limit orders with each other.However, by analogy to the best execu-tion example used in the SEC’s OrderHandling Release, Nasdaq believes thatthe crossing of two limit orders is simi-lar to the interaction of a market orderand a limit order. Accordingly, Nasdaqbelieves that to provide best execution toa customer limit order when that limitorder would cross another customer

limit order, MMA should execute thesell limit order against the buy limitorder at 10 1/4. In essence, the secondlimit order is a marketable limit orderthat is the equivalent of a market orderand should be treated as such under thebest execution principles discussed bythe SEC.

Question 7: Minimum PriceImprovement To Avoid ManningViolation


• MMA receives a customer limit orderto buy at 20 1/16 for 2,000 shares.

• MMA changes its quote to 20 1/16 for2,000 shares to reflect the price of thecustomer limit order.

• MMA receives a market order to sell2,500 shares.

• May MMA offer the market orderprice improvement over the 20 1/16thlimit order and execute the marketorder for its own account? If so, whatis the minimum amount of priceimprovement allowable?

Answer 7:

MMA is allowed to execute the marketorder at a price better than the limitorder. Nasdaq, after consultation withthe Quality of Markets Committee,believes that the minimum amount ofprice improvement that would permit amarket maker to avoid a violation of theManning Rule is 1/16th, where theactual spread is greater than 1/16th;however, where the actual quotationspread is the minimum quotation incre-ment, the minimum price improvementis one-half of the normal minimumquote increment. In Question 7, sincethe actual spread is 20 1/16 - 20 1/4, theminimum price improvement is 1/16th.Thus, MMA could trade ahead of thelimit order at 20 1/8th. If the actualspread were 20 1/16 - 20 1/8, since the

security is priced at more than $10 pershare, the minimum quote increment is1/16th. If the market maker wants totrade with an incoming market order tosell without triggering its Manningobligations to the buy limit order, themarket maker must buy from the sellorder at 20 3/32nds. Similarly, if thesecurity were priced under $10 andquoted at 5 1/32 - 5 1/16, the minimumprice improvement to avoid a violationof the Manning Rule would be 1/64thbetter than a buy limit order it holds.

This represents a change from previous statements regarding priceimprovement. In NASD Notice toMembers 95-43, regarding the ManningRule, Nasdaq stated that market makersmay avoid violating Manning if theyexecute for their own accounts at 1/64thbetter than the limit order price. Thisstatement no longer is applicable andis superseded by this information.

II. Discretionary Or WorkingOrders

Question 8:


• MMA quote: 9 7/8 - 10 1/4

• MMA receives 100,000-share discre-tionary (“working”) order to buy inwhich the institutional customer andthe market maker agree to the termsunder which the order is to be workedand the compensation that MMA is toreceive. The parties to this trade agreethat MMA may, if necessary to fill theentire order at an acceptable price,trade ahead of the institutionalcustomer’s order. MMA immediatelysells 30,000 shares to the institutionand holds the remaining 70,000shares.

A. MMA executes an undisplayed limit order to sell at 10 1/16 for 1,000 shares.

B. MMA executes a market order to sell for 1,000 shares at 10.

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NASD Interprets SEC Order Handling Rules, from page 13

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C. MMA executes an order to sell10,000 shares at 9 7/8.

• What are MMA’s responsibilities tothe 70,000 share order when itexecutes any of the orders describedin A, B, or C?

Answer 8:

MMA is holding a discretionary marketorder for which it has agreed to work toobtain an execution satisfactory to thecustomer. A discretionary order, some-times called a “not held” or a “work-ing” order, is an order voluntarilycategorized by the customer as permit-ting the member to trade at any pricewithout being required to execute thecustomer order. A broker/dealer withsuch an order must use its brokeragejudgment in the execution of the order,and if such judgment is properly exer-cised, the broker is relieved of its nor-mal responsibilities with respect to thetime of execution and the price or pricesof execution of such an order.

Because MMA has been givendiscretion by its customer to work theorder, MMA does not owe the same bestexecution obligations to it and to othercrossing orders as it would if the orderwere a non-discretionary market orlimit order. Thus, where beneficial to thediscretionary order, MMA may trade at10 1/16 or lower with incoming orderswithout necessarily triggering a fill forthe discretionary order it holds. Becausethe discretionary order is not a pricedorder, there are no Manning obligationsto the order, nor is there a specific priceat which an incoming order can bematched.

MMA, however, must clearly documentthat it has obtained the authorization ofits customer to work the order and mustdisclose to the customer that such dis-cretion means that the firm may trade atthe same price or at a better price thanthat received by the discretionary order.In addition, it should be noted that,because the customer has granted themarket maker the discretion to work the

order, the market maker, as agent, has aclear responsibility to work to obtain thebest fill considering all of the termsagreed to with the customer and themarket conditions surrounding theorder. In the absence of a clear under-standing between the trader and thecustomer regarding MMA’s activities incompeting with the customer order,MMA could potentially violate its fidu-ciary duties to its customer in the way it“works” the order.

Question 9:


• MMA accepts a discretionary orderto buy 100,000 shares with a cap of10 3/16.

• MMA receives a market order to sell1,000 shares from a customer.

• Does MMA have to match the marketorder against the discretionary orderthat has a cap?

Answer 9:

The discretionary order with a cap isnot considered a limit order because thefirm is “working” the order and may beable to execute it at prices other thanthe 10 3/16 cap price. Thus, MMA doesnot have to match the market orderagainst the discretionary order andMMA is able to buy from the marketorder at its bid of 10, assuming that thishandling benefits the discretionaryorder.

III. Execution Of Blocks OutsideThe Inside Market Price

Question 10:

• Nasdaq Inside Market:10 x 10 1/4

• MMA accepts a customer limit orderto buy 1,000 shares at 10 1/8 that isnot displayed.

• MMA negotiates with an institutionto buy 100,000 shares at 9 7/8.

• Does MMA have to execute the1,000-share limit order at 9 7/8?

Answer 10:

No. While MMA has a Manning obliga-tion to execute the limit order, MMAcan execute the limit order at its statedprice of 10 1/8. In addition, MMA is notobligated to execute 1,000 shares of theblock at 10 1/8, assuming that MMA hasclearly disclosed to the institution that itintends to handle the order in this man-ner, and the institution has agreed tothis practice.

IV. Net Trades/Internal SalesCredits

Question 11:


• MMA holds a limit order to buy at 20for 1,000 shares.

• MMA receives from an institution alimit order to sell 9,000 shares “net”at 20.

• What effect does the “net” sell orderhave on MMA’s Manning or bestexecution obligations?

Answer 11:

MMA must execute the net sell order at 20 by matching (as principal or asagent) the limit order to buy at 20against the net sell order first and exe-cute the remainder of the net orderagainst its inventory.

Question 12:

• Assuming the same facts as outlinedin Question 11 above, does theanswer change if MMA discloses tothe institutional customer with the selllimit order that the sales representa-tive is to obtain a 1/8th sales creditand thus, MMA will be holding thelimit order at a price exclusive of thesales credit?


16


Answer 12:

If MMA chooses to disclose the internalsales credit to the institutional customerand explains that the 20 net price is tobe affected by this sales credit, and thecustomer agrees to this arrangement,then MMA should hold the limit order tosell at 20 1/8 and display the order in itsquote, unless an exception to Rule11Ac1-4 were available. Thus, theinside market would move to 20 - 201/8, 10 x 90.

Accordingly, because the net limit orderto sell was held at a price (20 1/8) thatdoes not match against the limit order tobuy at 20, there is no execution.

Further, if the net limit order to sellwere to be executed, it should beexecuted at a price of 20 1/8 andreported at such price to Nasdaq fortrade reporting purposes and to the cus-tomer on the confirmation for purposesof Rule 10b-10. In effect, the agreementregarding the compensation to the salesrepresentative converts an internal divi-sion of firm profits on a trade into com-pensation to the firm that must betreated as a markup/markdown or com-mission and handled as such. Thisanswer is consistent with statementsmade by the NASD in Notices toMembers 95-67 and 96-10, as well asthe letter from Dr. Richard Lindsey,

SEC, to Richard Ketchum, NASD, datedJanuary 3, 1997.

If members have additional questionsregarding these issues, contact EugeneA. Lopez, Director, Market Services,The Nasdaq Stock Market, at (202) 728-6998 or NASD Regulation’sMarket Regulation Department, at (800) 925-8156. Any requests for legalopinions regarding matters addressed inthis article should be directed to theNasdaq Office of General Counsel, at(202) 728-8294. ❏

The Securities Industry/RegulatoryCouncil on Continuing Education(Council) recommended rule changes toindustry self-regulatory organizations(SROs)1 that would significantlyenhance the current securities industryContinuing Education Program(Program). Currently, the RegulatoryElement computer-based training doesnot distinguish between registered repre-sentatives and principals. Therecommended changes to the Program,if adopted by the SROs and approved bythe SEC, call for the development of anew Regulatory Element computer-based training module related to the spe-cific needs of registered principals.

The new module for registered princi-pals will have the scenario-based formatof the current Program. What will be

different is that the scenarios will illus-trate principal-specific situations whichthe participant must resolve by applyingindustry rules, sound business practices,human relations skills, and commonsense. Scenarios will be made morerealistic through the use of audio andvideo techniques.

No Graduation From The ProgramThe Council recommendation alsorequires registered persons to participatein the Regulatory Element throughouttheir careers. Under current rules, regis-tered persons participate in theRegulatory Element computer-basedtraining on the second, fifth, and tenthanniversaries of their initial registration,then graduate from the Program. Underthe proposed rule, registered personswill be required to participate in the

appropriate Regulatory Element on thesecond anniversary of their initial regis-tration and every three years thereafter,with no graduation from the Program.

A One-Time GrandfatheringAlthough graduation would beabolished under the proposed rules, aone-time grandfathering would existfrom the Regulatory Element. Thosegrandfathered will be all persons gradu-ated from the Regulatory Element as ofthe date the revised rules become effec-tive, unless they are registered principalsor sales supervisors who have been reg-istered as such for less than 10 years.After grandfathering is finalized, all reg-istered persons covered under theRegulatory Element would be requiredto complete computer-based trainingwithin 120 days of the second anniver-

Continuing Education/Testing/Qualifications

Securities Industry/Regulatory Council On Continuing Education Recommends Changes To Industry ContinuingEducation Program

1 The American Stock Exchange (AMEX), the Chicago Board Options Exchange, Incorporated (CBOE), the Municipal Securities RulemakingBoard (MSRB), the National Association of Securities Dealers, Inc. (NASD), the New York Stock Exchange, Inc. (NYSE), and thePhiladelphia Stock Exchange (PHLX).

NASD Interprets SEC Order Handling Rules, from page 15


Audio Tape Order Form NASD Regulation, Inc.

Fall securities conference November 5-7, 1997 Phoenix, Arizona

Your Name

Company

Street Address MS/Fl/Suite/Apt. # City

State Zip Code Day Phone Fax

For Mail or Fax Charge Card Orders:

❏ Visa ❏ Mastercard ❏ Discover ❏ AMEX ❏ Check (payable to A.V.E.R. Associates)

Cardholder Name Card Number

Card Expiration Date Cardholder Signature

Mail or Fax completed form and payment to:A.V.E.R. Associates 6974 Ducketts Lane, Elkridge, \MD 21075, Phone 410-796-8940, Fax 410-796-8962

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Complete to Order

Dispute Resolution Skills Training

Concurrent Workshops (Two Tapes/Session)

❍ 1197DR02 Hearing—Damages/Awards/Disciplinary Referrals

❍ 1197DR03 Managing The Discovery Process

❍ 1197DR04 Mediation

❍ 1197DR05 Overseeing Motion Practice:Dispositive Motions

❍ 1197DR06 Injunctive Relief (Single Tape)

❍ 1197DR07 The Hearing & Evidentiary Issues

❍ 1197DR08 Employment Law Update

Fall Securities Conference

❍ 119701 General Session IRichard G. Ketchum and

Todd A. Robinson

❍ 119708 Luncheon and Keynote SpeakerStephen L. Hammerman

❍ 119715 Open Forum with DistrictDirectors

❍ 119716 General Session IIMary L. Schapiro and John T. Wall

Concurrent Workshops (Single Tape/Session)

❍ 119702 Branch Office and Small Broker/ Dealer Compliance Systems

❍ 119703 Examination Programs andPriorities

❍ 119704 Communications with the Public

❍ 119705 Independent Contractors/Investment Advisers

❍ 119706 Nuts & Bolts of Starting Up a Firm

❍ 119707 Continuing Education

❍ 119709 Effective Supervision

❍ 119710 Rules Round Up

❍ 119711 Technology and Compliance

❍ 119712 Dynamics of Customer Complaints

❍ 119713 MSRB Rules

❍ 119714 On-Line Compliance

❍ 119717 Market Regulation Issues

❍ 119718 Enforcement Initiatives

Please Check Session Numbers

Advertising Regulation Seminar

❍ 1197A01 General Session IIntroductory Remarks

Update of New Rules

Overview of New Rule

Proposals

❍ 1197A02 General Session IINuts & Bolts

Internet and Electronic

Communications

Concurrent Workshops (Single Tape/Session)

❍ 1197A03 General Brokerage

❍ 1197A04 Fundamentals of Mutual Funds and Variable Products Advertising

❍ 1197A05 Case Studies & Point of SaleIssues

❍ 1197A06 Advanced Issues in Mutual Funds and Variable ProductsAdvertising

Post-Conference Prices:Number of Selected Individual Sessions x $12.00 = $

Number of Sessions with Two Tapes (“Dispute Resolution…” Workshops Only, except DR06) x $19.00 = $

5% discount when purchasing eight or more sessions (includes storage album) $ x 5% = = $ -

Special Discount Packages:Complete Set of Dispute Resolution Skills Training x $113.40 = $

Complete Set of Advertising Regulation Seminar x $64.80 = $

Complete Set of Fall Securities Conference x $194.40 = $

Complete Set of ALL recordings x $354.00 = $

Shipping Charges:$1.85 for the first tape $ 1.85

$0.95 for each additional tape ($10.20 maximum shipping charge) x $0.95 = $

$10.00 extra shipping charge for orders outside of the US = $

Sub-total = $

x 5% MD residents only = $

Grand Total $

18


sary of their initial registration date andevery third anniversary thereafter.

Presently, 83 percent of registered per-sons are covered by the RegulatoryElement. The proposed changes willbring persons registered for more than10 years in a non-principal capacity, butregistered as principals less than 10years, back into the Program for as longas they maintain their principal registra-tion. This means that 90 percent of theindustry will fall under the Program inthe first year after the rule change.

Inactive RegistrationThe proposed rule maintains the provi-sion: registered representatives who do

not satisfy the Regulatory Elementwithin 120 days of their registrationanniversaries will have theirregistrations made inactive and couldnot perform or be paid for activities thatrequire a securities registration. Anyoneremaining inactive for more than twoyears must requalify for registration byexamination.

With millions of new investors in themarkets today, and the growing array offinancial products and securities that arebeing offered, the Council believes thatan educated sales force is absolutelyessential to ensuring the integrity of andinvestor confidence in the marketplace.Requiring registered persons to partici-

pate throughout their careers in both theRegulatory Element and Firm Elementof the industry Continuing EducationProgram, and providing industry princi-pals with specific training will benefitboth the industry and investors tremen-dously.

Questions concerning the ContinuingEducation Program may be directed toJohn Linnehan, Director, ContinuingEducation, NASD Regulation, at (301)208-2932, or Daniel M. Sibears, VicePresident, Member Regulation, NASDRegulation, at (202) 728-6911. ❏

Last year NASD Regulation contractedwith Sylvan Learning Systems, Inc., ofBaltimore, Maryland to administer test-ing and continuing education to thesecurities industry. Previously, theseservices were provided through 55NASD PROCTOR® CertificationCenters. The Sylvan network includesdelivery at over 200 locations in thecontinental U.S., Alaska, Hawaii, PuertoRico, and the Virgin Islands.

Recently, the Sylvan centers experiencedproblems that affected testing and con-tinuing education sessions, and both enti-ties regret any resulting inconveniencesand are working to prevent a recurrence.Both sides have commenced reviews oftheir systems and will take all necessarycorrective action.

Following is detailed information forNASD members regarding testing andContinuing Education Program delivery,particularly since some processes andprocedures have changed.

Sylvan Technology Centers Sylvan provides an expansive, nation-wide network of testing centers, whichallows NASD firms and their personnelgreater flexibility in choosing testinglocations for exams and continuing edu-cation sessions. The vast majority of theTechnology Centers are co-located withSylvan’s Learning Center franchises.The Sylvan Technology Center networkoffers an increase not only in the num-ber of sites, but in the total number ofcomputer stations available for testingby almost 200 percent over what thePROCTOR network provided.

It is important to note that the SylvanTechnology Center environment is dif-ferent in the following ways:

• Unlike the PROCTOR network,Sylvan’s Technology Centers offertheir services to many differentclients. For example, it is common foran NASD candidate to be seatedalongside a candidate who is taking aNurse’s Licensing Exam or aGraduate Record Exam.

• Depending upon the time of day acandidate is taking an exam or partici-pating in a continuing education ses-sion at a Sylvan site, the candidatemay see children being tutored in theLearning Center portion of the site.Most of the waiting rooms provided atSylvan sites do not separate clients ofthe Learning and Technology Centers.

Appointment Scheduling TipsTo schedule an individual appointment,call either the local Sylvan TechnologyCenter phone number, or call Sylvan’sNational Registration Center (NRC) at (800) 578-6273 (Option 1). Further-more, keep the following “tips” in mind:

• Call local centers after 10 a.m. inorder to avoid early morning activitythat normally takes place at the cen-ters.

• Plan ahead to secure a preferred train-ing date; allow a two to three weeklead time when scheduling a session.

NASD Regulation Provides Testing & Continuing EducationInformation

Securities Industry/Regulatory Council On Continuing Education, from page 16

19



• Provide the name as it appears on theForm U-4. The registration validationprocess matches the first initial of thefirst name. For example, if the candi-date’s name is Robert Jones, schedul-ing the appointment as “Bob” willcause a validation problem. If a candi-date’s name is F. Scott Jones, schedul-ing the appointment as “Scott” will alsocause a problem with the validation.

• Provide a “back-up” telephone num-ber in addition to a primary number.Center staff will attempt to reach thecandidate if it is necessary tocancel/reschedule the session if theenrollment cannot be validated. Theback-up number could also be used tonotify the candidate (prior to the can-didate traveling to the center) ofemergency closure due to weather ora system outage.

• Note the appointment tracking num-ber and the telephone operator’sname. The tracking number is veryhelpful if an appointment needs to berescheduled or canceled.

• Make appointments through thelocal center if scheduling anappointment less than four calen-dar days from the current date. TheNRC is not able to schedule thesetypes of appointments, since full con-trol of a center’s appointment calen-dar reverts to the local center at minusfour days. This gives the center maxi-mum control to schedule, reschedule,or cancel appointments on shortnotice.

• If the NRC indicates that the “sched-uling system is down,” the schedulingsystems at local centers are alsodown. When the scheduling systemgoes down, it is down everywhere.

• Scheduling more than fiveappointments per call is a “group”appointment regardless of whether theappointments are scheduled at onecenter site or numerous sites. (See theparagraph “NASD Group SchedulingTeam” under the Resource Teamssection below for more information.)

Policies And Procedures• Personal Belongings—If at all possi-

ble, do not take briefcases, backpacks,laptop computers, cell phones, orpagers to the center. Lockers areavailable to store belongings, butmay be too small to store larger items.Candidates could be asked to locklarger items in their cars.

• Identification Requirement—Candidateswithout proper identification will notbe seated. Proper identification isdefined as one valid state or federalgovernment-issued ID that containsboth a photo and signature, such as adriver’s license, passport, military ID,or state-issued ID card.

If a candidate does not possess theproper identification as defined above,the firm’s Registration Departmentshould be contacted immediately. The firm’s Registration Departmentshould contact NASD’s Field SupportServices (FSS) Team at (800) 999-6647 in order to determine theappropriate course of action.

• Rescheduling Appointments Due to Exam Failure—If a candidate does not pass the exam, the candidateneeds to contact the firm’s RegistrationDepartment to re-register for theexam. Another appointment shouldnot be made until re-registration hastaken place.

• Rescheduling Incomplete ContinuingEducation Sessions—If a candidatedoes not complete a continuing edu-cation session, the candidate needs to wait 48 hours before reschedulingwith the local center or NRC. Thisallows time to create a newenrollment record.

• Rescheduling Appointments Due to a Problem (No Exam) at theTechnology Center—If a candidateencounters a problem at the centerwhereby center staff cannot launch anexam or continuing education session,the candidate cannot reschedule theappointment for at least 48 hours (two days) from the initial

appointment date. The time lag allowsthe Sylvan and the NASD systems tocommunicate and free the enrollmentrecord so that the new appointmentrecord and existing enrollment recordcan be matched, and the appointmentrecord validated.

• “7+” Day Scheduling Procedure—Ifan appointment is scheduled morethan seven days from the current date,the appointment will be bookedregardless of whether a validation(a.k.a., registration) has been found onthe day the appointment call is made.Subsequently, if the appointment can-not be validated within seven calendardays before the appointment date,Sylvan will call the candidate. Theywill verify the appointment informa-tion (spelling of name, Social SecurityNumber, exam or session series #,etc.) on the appointment record. IfSylvan is still unable to validate theregistration, the appointment will becanceled until the problem can beresolved. A Sylvan representativemay need to cancel an appointmentby leaving a message on a phonemachine or voice mail if Sylvan can-not reach the candidate directly.

• Center Downtime Procedure—If acenter is experiencing system-relatedproblems and cannot seat the candi-date at the scheduled time, the candi-date will have to wait at least 30minutes from the appointment starttime for the problem to be corrected.If, after 30 minutes, the problem hasnot been corrected, the candidate cancontinue to wait or can leave the cen-ter and reschedule the appointment ata later date. When a center is “down,”the center staff will not be able toreschedule the appointment at thattime; nor will the NRC be able toreschedule the appointment on thatday. Candidates must wait 48 hours(two days) before calling the center orNRC to reschedule the appointment.The time delay is necessary in orderto clear the enrollment and appoint-ment records.

20


• Window Extension Process—If a can-didate is unable to obtain an appoint-ment at a Sylvan Technology Centerbefore the window closing date on atest or continuing educationenrollment, the following procedure isin place to assist the candidate:

Window extensions will only begranted to candidates who haveattempted to obtain an appointmentmore than 10 business days before theexpiration date of the validation win-dow. Extension requests made to theFSS Team less than 10 business daysfrom the validation expiration will beDENIED.

The candidate, or firm registrationstaff, must telephone either the localcenter or the NRC at (800) 578-6273at least 10 business days before thewindow expiration date to schedulethe appointment. If the candidate cannot obtain an appointment prior to the window closing date, the candi-date must determine with the localcenter or NRC the next available dateto book the appointment.

The candidate, or firm registrationstaff, must then call the NASD FSSTeam at (800) 999-6647 (Option 3).The candidate relays the window andappointment availability information.The FSS Team will extend the win-dow to the appointment availabilitydate.

The candidate must then re-call eitherthe local center or NRC to schedulethe appointment on the agreed-upondate. This call should be placedimmediately to ensure that theappointment gets booked and notgiven away to another candidate.

Resource Teams

NASD Field Support Services (FSS) Team

NASD’s FSS Team, (800) 999-6647(Option 3), is available Mondaythrough Friday from 8:30 a.m. to 5:30p.m., Eastern Time (ET). The FSS

Team can assist member firms in thefollowing areas:

• Questions pertaining to candidate enrollments.

• Questions regarding exam delivery policy and procedure.

• Questions about, or obtaining extensions to, a candidate’s validation window.

• Making arrangements for “special session” paper/pencil exams for member firm candidate groups.

• Reporting problems specific to exam and/or continuing education session delivery at Sylvan Technology Centers.

The firm should call its assigned NASDQuality & Service Team to register acandidate to take an examination or torequest assistance pertaining to any can-didate registration issue. For questionsabout continuing education rules, regu-lations, policies, or procedures, contactHeather Bevans of NASD Regulation at(301) 590-6011.

Sylvan’s Resource Teams

Sylvan has set up an Enrollment TaskTeam (ETT) specifically to handleNASD enrollment issues. The ETT isavailable Monday through Friday 7 a.m.to 7 p.m., ET, at (800) 766-2539(Option 2). On Saturdays, ETT is avail-able between the hours of 8 a.m. to 4p.m., ET.

Call the ETT with questions aboutwhether a candidate has a valid enroll-ment with the NASD. NASD candidateswho have valid enrollments with theNASD are able to schedule appoint-ments for the next available date. It iscritical to provide accurate informationincluding: first initial of first name (uselegal name), last name, Social SecurityNumber, and the name or series of thetest. If a candidate does not have a validenrollment at the time of the call, thesystem will only allow the candidate to

schedule an appointment date more thanseven days from the call date. ETT hasaccess to the NASD’s Central Registra-tion Depository (CRDSM) database andwill work with the NASD to validate thecandidate’s appointment. If ETT feelsthere is a problem with a candidate’senrollment, it will call to verify the can-didate’s information. ETT will cancelappointments for candidates whoseenrollments cannot be validated sevendays before their appointment date andwill inform them to contact their firms.

The NASD Group Scheduling Teams

Reserve Block Requests—A reserveblock is a specified number of worksta-tions (a minimum of five) for candidatesscheduled in the same location on thesame day. Requests for a reserve blockmust be received at least 30 days priorto the requested date.

Nakia Savage has been assigned tofacilitate these requests. For requests,changes, and/or general information,call Nakia Savage at (800) 578-NASD(6273), Option 2, or (410) 843-4800(ext. 2126). If she is unavailable, contact Artischa Holt at ext. 2124.

Include the following information whenfaxing a reserve block request:

• Type of Test

• # of Seats

• Desired Location

• Test Date with a Second Choice

• Contact Person and Phone #

The above information will simplyreserve the space. The candidates’names and Social Security Numbersmust be faxed at least 10 days prior tothe appointment date. Candidates with-out a valid enrollment will be subject tocancellation by ETT.

Multiple Appointments—A multipleappointment is five or more candidatesscheduled in the same location on the

NASD Regulation Provides Testing & Continuing Education Information, from page 19

21


same date, or on various dates at differ-ent locations. To ensure availability,multiple appointment requests should be received at least seven days prior tothe desired appointment date.

Sylvan’s specialists assigned to handlemultiple appointments are Twaila Purnelland Artischa Holt. For requests, changes,and/or general information, they can bereached at (800) 578-NASD (6273),Option 2, or at (410) 843-4800 (Purnellat ext. 2125 and Holt at ext. 2124).

Include the following information whenfaxing your multiple appointmentrequest:

• Candidates’ Names

• Social Security Number

• Home Phone #

• Work Phone #

• Type of Test

• Location

• Desired Date

• Contact Person and Phone Number

Candidates Declaring English As A Second LanguageCandidates declaring English as aSecond Language (ESL) can requestmore time to take tests by calling theNRC at (800) 578-NASD (6273). ESLcandidates should not call the SpecialAccommodations Depart-ment. Theamount of extended time is based onthe standard length of the test: seechart below.

ESL candidates requesting additionaltime must have an Authorization Letterfor Additional Time with them whenthey arrive for their testing appointment.The Test Center Administrator will collect this letter during check in. Theletter must:

• be printed on company letterhead;

• be signed by the candidate’s supervisor or a principle of the firm;

• state that English is the candidate’ssecond language;

• contain the candidate’s name, test title and/or series number, andappointment date;

• be an original (no faxes orphotocopies); and

• provide a recent date.

Form letters from firms are acceptableas long as the candidate’s name, testtitle, date, and requisite signature areoriginal and have not been photocopied.Candidates not sponsored by a firmshould call the NASD QualificationsDepartment at (301) 590-6500 forapproval prior to their scheduledappointment.

Special Accommodations TeamIt is the policy of NASD and Sylvan toensure all candidates have equal opportu-nity and access to testing. Every candi-date, especially those with disabilities,has the right under the Americans With Disabilities Act (ADA) to receivethe same services as those withoutdisabilities; this means being able to register for, schedule for, and take a testwithin a reasonable amount of time.NASD and Sylvan will work with a can-didate to provide access to testing withspecial accommodations; the overall goalis to ensure that an effective, yet reason-able, solution is found for each candidate.

Firms or candidates should contact the NASD Special AccommodationsDepartment at (301) 590-6724 toreceive approval for special accommo-dations. The NASD Special Accommo-dations Department will contact thefirms or candidates to let them know if

they have or have not been approved forspecial accommodations. If approved,the firm or candidate will be instructedto wait at least 48 hours, and then callSylvan’s Special AccommodationsDepartment at (800) 967-1139 to sched-ule the appointment. A Sylvan SpecialAccommodations Coordinator will workwith the firm or candidate and the cen-ter, if necessary, to accommodate thecandidate appropriately.

Candidates needing special accommo-dations must not register through theregular NRC phone number for NASDcandidates. Candidates failing to followthe procedures outlined above may risknot having special accommodationsavailable at the testing center on the dayof their test.

Future InitiativesThe NASD Regulation Web Site’s(www.nasdr.com) “Exam Information & Locations” Web Page, whichprovides nationwide delivery locationinformation, will be updated to providelocation-specific maps for each center.The user will be able to view a mapshowing the location of the centerdirectly from the Center Location List.In addition to providing the map, theuser will have the ability to zoom in orout in order to view a more detailed orglobal map of the general area. Thisnew feature will also provide point-to-point driving directions. Watch for thisnew feature coming soon.

NASD Regulation will continue to keepits members and other constituentsinformed about its testing deliveryefforts through printed publications andthe NASD Regulation Web Site.

Direct questions about this article orsuggestions about future exam deliverytopics to cover in upcoming NASDRegulation communications to LindaChristensen, Member Regulation,NASD Regulation, at (610) 627-0377(e-mail: [email protected]). ❏

Standard Test Time Allowable Additional Time

Up to 2 hours 30 minutes2.25 - 5 hours 60 minutesOver 5 hours 30 minutes per session/part

22


The Injunctive Relief Rule – NASDRule 10335 (Rule) – of the NASD Codeof Arbitration Procedure (Code) givesarbitrators the authority to grant injunc-tive relief in industry or clearing contro-versies. The Rule allows parties to seekinjunctive relief either within the arbitra-tion process or from a court of compe-tent jurisdiction. The Rule also providesexpedited procedures for hearings on themerits once a temporary injunction isobtained from an arbitrator or a court.The Rule and its procedures are impor-tant tools for member firms and associ-ated persons seeking quick resolution ofdisputes. In response to suggestionsfrom parties, NASD Regulation is seek-ing further comments from members,associated persons, and others on howthe Injunctive Relief Rule and expeditedproceedings work and on how toimprove the Rule and procedures.

BackgroundOn January 3, 1996, the NASDRegulation Office of Dispute Resolution(ODR) implemented a one-year pilotarbitration procedure to govern injunc-tive relief claims between or amongmembers and associated persons. Thepilot procedure, codified in NASD Rule10335, was extended for another year onJanuary 3, 1997, in order to permit ODRto gain additional experience with theRule before permanently adding it to theCode.

Rule 10335 provides, among otherthings, that:

• Parties may seek temporary injunctiverelief either in court or in arbitration.

• Parties who seek temporary injunctiverelief in court must simultaneouslysubmit the claim to arbitration for per-manent relief.

• Permanent injunctive relief may beobtained in arbitration as part of the

final relief a party seeks in connectionwith a claim.

• Applications for interim injunctiverelief are expedited.

• Where a court grants interim injunc-tive relief to one of the parties, arbi-tration proceedings on the disputemust be expedited.

Experience With The RuleMost cases filed under the Rule haveinvolved associated persons leaving onefirm for employment at another firm(often called “raiding” cases). The asso-ciated person’s former firm was gener-ally the claimant in arbitration. In mostsuch cases, the firm filed the action toprevent a former employee from solicit-ing clients whom the employee workedwith at the firm. The following causes ofaction are commonly alleged in thesecases:

1. breach of contract;

2. misappropriation or conversion oftrade secrets (customer information);and

3. defamation (relating to thecircumstances of the employee’sdeparture from the firm).

Since the inception of the Rule, few caseshave gone forward to a hearing on themerits after a court or arbitrator issued aninjunctive order. Most of the cases settledshortly after filing or just before aninjunctive hearing in arbitration.

OperationAn application under the InjunctiveRelief Rule resembles an ordinary arbi-tration claim filing. The applicationmust include a submission agreement, astatement of claim, a filing fee, and ahearing session deposit. The Rule addi-tionally requires that the applicant orclaimant specify the type of interimrelief sought and the reasons relief

should be granted. The applicant mustserve all documents directly upon theopposition and provide the NASDRegulation New York DisputeResolution Office with proof of service.The applicant must pay a nonrefundable$2,500 surcharge to NASD Regulationwhich covers the significant costs ofprocessing expedited proceedings.

If an applicant seeks an ImmediateInjunctive Order, staff must endeavor to appoint an arbitrator and schedule ahearing within one to three businessdays of receipt of an application. If aRegular Injunctive Order is sought, staffmust endeavor to appoint an arbitratorand schedule a hearing within three tofive business days.

The Rule requires no response to anapplication for immediate relief. On theother hand, the Rule states that wherethere is an application for a RegularInjunctive Order a response must beserved on the applicant within threebusiness days of the application’sreceipt. Unlike the process in ordinaryarbitration proceedings, failure to file ananswer to any interim injunctive appli-cation will not preclude a respondentfrom asserting defenses at the arbitrationhearing.

Interim injunctive hearings with a singlearbitrator are usually conducted by tele-conference. When hearings areconducted in person, NASD Regulationholds them in New York, Chicago, andSan Francisco, or a limited number ofother locations where specially qualifiedarbitrators are located.

Within one to five business days ofreceipt of the application, NASDRegulation provides notice of theinterim injunctive hearing and the back-ground of the appointed arbitrator. Thearbitrator may be challenged for cause

Dispute Resolution

NASD Seeks Further Comment On Injunctive Relief Rule


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24


but cannot be peremptorily challengedeven if he or she presides at the laterhearing on the merits.

Temporary injunctive orders, unlikefinal awards, are not publicly available.

Arbitrator QualificationsA single arbitrator selected to hearapplications for interim injunctive reliefmust be from the roster of almost 300arbitrators specially designated as“Injunctive Qualified.” Arbitrators mustpossess extensive knowledge of provi-sional remedies, have extensive arbitra-tor experience, and be available on shortnotice to be eligible to serve on thesematters.

CommentsNASD Notice to Members 97-59, issuedin September, asked for comments onthe following aspects of the Rule:

• availability of temporary injunctiverelief in court;

• time limits on injunctive relief;

• discovery;

• hearing procedures; and

• the composition of the arbitrationpanel.

There is still time to provide your com-ments or suggestions. Before becomingeffective, any rule change developed asa result of comments received must be

adopted by the NASD Regulation Boardof Directors, may be reviewed by theNASD Board of Governors, and mustbe approved by the SEC. The text ofNASD Rule 10335 is set forth in NASDNotice to Members 97-59 and is part ofthe NASD Code of ArbitrationProcedure.

NASD Regulation encourages all mem-bers and interested parties to respond to the issues raised in NASD Notice toMembers 97-59. Comments should bemailed to:

Joan ConleyOffice of the Corporate SecretaryNASD Regulation, Inc.1735 K Street, NWWashington, D.C. 20006-1500 ❏

The first phase of the MunicipalSecurities Rulemaking Board (MSRB)Transaction Reporting System requiringthe reporting of inter-dealer transactionshas been operational since January1995, and the MSRB has collectedtransaction information on more than 2million inter-dealer trades since theimplementation of the system. MSRBRule G-12 requires that dealers submittheir trades with other dealers for auto-mated comparison at a registered securi-ties clearing agency. The NationalSecurities Clearing Corporation (NSCC)is the registered securities clearingagency providing this service.

Each night after the comparison data isprocessed, NSCC forwards the transac-tion information to the MSRB.Therefore, dealers that submit theirtransaction information to the automatedcomparison system as required byMSRB Rule G-12 also satisfy therequirements of MSRB Rule G-14 ontransaction reporting for inter-dealertransactions.

Customer Transaction ReportingThe MSRB is in the process of design-ing the second phase of its TransactionReporting System. This second phasewill require that dealers report to theMSRB all transactions—bothinstitutional and retail customer transac-tions—on trade date. The MSRB antici-pates that the second phase of thesystem will be implemented in the firstquarter of 1998. The mechanism forreporting customer transaction data tothe MSRB in the second phase of theprogram is slightly different than thefirst phase. Firms are asked to reporttheir customer transactions in one ofthree methods:

• direct submission to NSCC;

• indirect submission to either a servicebureau or a clearing agent; or

• through a PC dial-up connection tothe MSRB.

NSCC has agreed to accept separatefiles containing customer transactionreporting data each night from its

participants. NSCC will, in turn,forward the customer transaction data tothe MSRB for processing.

Firms will need to provide the followinginformation when reporting customertransactions to the MSRB:

• CUSIP Number

• Trade Date

• Time of Trade Execution

• Dealer Identifier

• Buy/Sell Indicator

• Par Value Traded

• Dollar Price

• Yield

• Dealer’s Capacity and, if Agent,Commission Charged

• Settlement Date

• Dealer’s Control Number for theTransaction

• Cancel/Amend Code and PreviousRecord Reference

Municipal Securities

Municipal Securities—Transaction Reporting

NASD Seeks Further Comment On Injunctive Relief Rule, from page 22

25


The MSRB has filed an amendment to Rule 36 revising

Forms G-36(OS) and G-36(ARD). The revisions to Forms

G-36(OS) and G-36(ARD) add several new data elements

and reorganize the layout of the forms. The new forms

are to be used for filings made after January 1, 1998.

Member firms may obtain copies of the new Forms

G-36(OS) and G-36(ARD) from the MSRB by calling

(202) 223-9347 or by visiting the MSRB’s Web Site at

www.msrb.org. ❏

Attention

While this information is similar to theinter-dealer transaction data, it does dif-fer from those requirements. If a firmsubmits customer transaction data to theMSRB via NSCC, it must be submittedin a separate file from the inter-dealercomparison information. Both theMSRB and NSCC have informationavailable on their Internet Web sitesproviding details on how to submit cus-tomer transaction files.1

In preparation for the second phase ofthe transaction reporting program, theMSRB has sent each firm registered as amunicipal securities dealer a customertransaction reporting form. In complet-ing the form firms need to provide con-tact names, phone numbers, clearinginformation, their firm CRD number,their firm’s executing broker symbol,and an indication of how they will sub-mit customer transaction data to theMSRB. MSRB Rule G-14 on transac-tion reporting requires that firms com-plete a test of the customer transactionreporting phase of the system. Firmsmust complete and return the form tothe MSRB prior to being scheduled fortesting. Any firm that has not received acustomer transaction reporting formshould contact the MSRB at (202) 223-9347.

Introducing BrokersNASD Regulation has become awarethat some member firms that act asintroducing brokers believe that they areexempt from the trade-reporting require-ments of MSRB Rules G-12 and G-14.This is not correct. Firms registered asmunicipal securities dealers are requiredto have their own four-letter executing

broker symbol. This symbol is used toidentify the firm in both the first andsecond phases of the TransactionReporting System. Firms that introducetransactions are, for MSRB Rule G-14purposes, the executing broker and needto use their own unique symbol, nottheir clearing firm’s symbol. Thisrequirement currently applies to alltransactions, even transactions betweendealers. The responsibility for accuratereporting of the executing broker sym-bol rests with both the clearing firm andthe executing firm. The clearing firm isresponsible because it has assumed theresponsibility to accurately transmitinformation. The introducing firm isresponsible because it is the executingbroker. Members should verify that theirclearing agent and/or service bureau iscurrently reporting the executing brokersymbol when submitting inter-dealertransactions for automated comparison.Firms that do not have an executing bro-ker symbol may obtain one by callingNASD Subscriber Services at (800)777-5606.

Ongoing Compliance ReviewMembers are reminded that MSRB RuleG-12 requires that all inter-dealer trans-actions eligible for automated compari-son be compared through the NSCC.Failure to do so results in a violation ofMSRB Rule G-12 on uniform practiceand Rule G-14 on transaction reportingsince the mechanism for reporting inter-dealer transactions to the MSRB isthrough the transmission of transactiondata for comparison to NSCC. MSRBRule G-14 on transaction reportingrequires that firms submit their inter-dealer transactions timely and accurately

to allow the transaction to compare ontrade date in the initial comparisoncycle. The Rule also requires that firmssubmit:

• accrued interest if the settlement dateis known;

• the time of trade; and

• the executing broker symbol for thefirm introducing the transaction.

NASD Regulation reviews monthly per-formance statistics compiled by NSCCand contacts those firms that do notappear to be complying with the timeli-ness or accuracy requirements of MSRBRules G-12 and G-14. Firms that are notin compliance are asked to provide aplan for corrective action. Firms thatreceive notices of non-compliance withthese requirements may be subject todisciplinary action. Questions on thisarticle or the review process may bedirected to Judith A. Foster, DistrictCoordinator, Fixed Income SecuritiesRegulation, Member Regulation, NASDRegulation, at (202) 728-8462.

1The documents on the MSRB’s Web Site (www.msrb.org) are “Changes to File Specifications” (October 24, 1997),“Reporting Customer Transactions to the Board: Rule G-14,” MSRB Reports (January 1997), “MSRB TransactionReporting Program: Questions andAnswers,” and “Data Element and FileSpecifications for Reporting CustomerTransactions,” (March 1997). The Important Notices on the NSCC Web Site (www.nscc.com) are “The MSRB’sTransaction Reporting Program forMunicipal Bond Securities: NSCC InterfaceRequirements” (April 2, 1997) and “TheMSRB’s Transaction Reporting Program forMunicipal Bond Securities: MSRB Testingwith NSCC Interface” (July 9, 1997). ❏

26


This edition of “Askthe Analyst” features

answers to questions of generalinterest raised during the AdvertisingRegulation Seminars held in Washington,D.C. on October 30-31 and in Phoenix,Arizona on November 5, 1997. The sem-inars covered a variety of topics relatingto communications with the public,including electronic media, telemarket-ing, investment companies, and generalbrokerage. If you have any questions orcomments about this column, or sugges-tions for topics to be covered in future“Ask the Analyst” columns, please con-tact the Advertising RegulationDepartment at (202) 728-8330.

Electronic Communications

Q. What is the responsibility of a mem-ber firm for the currency of the informa-tion it publishes on its Internet Website? When does the information becomestale?

A. While Web communications enablemember firms to publish and then main-tain large quantities of information,these communications also require ade-quate allocation of resources for theongoing maintenance and updating ofthis information over time. Membersmust assure that all their communica-tions with the public are accurate andprovide the reader with a sound basis for evaluating the facts with respect tothe product or service being offered.

The NASD does not have a specifictime frame after which information isdeemed “stale.” However, ifinformation on a Web site is no longeraccurate or has been supplanted by morerecent data, then the member mustrevise the Web site in order to comply.NASD Conduct Rule 2210 prohibits theuse of inaccurate information and

requires that members’ communicationsprovide the reader with a sound basis forevaluating the facts with respect to anyproducts or services being offered. Forexample, stock prices must be currentand a date provided for such prices topermit the reader to evaluate the infor-mation.

In addition, there are certain rules thatare date sensitive. For example, totalreturn performance data for mutualfunds and variable annuities must becurrent to the most recent calendar quar-ter as required by SEC Rule 482.

Q. Must a member firm file its“intranet”? This internal Web site isavailable only to individuals employedby or registered with our firm who havebeen given password access to it.

A. This type of Web site does not needbe filed with the Advertising RegulationDepartment. Only communications withthe public are subject to the filingrequirements set forth in NASDConduct Rule 2210(c).

Q. Does NASD Regulation permit theuse of interactive calculators insoftware packages and Internet Websites? If so, what are the return restric-tions?

A. Members may use interactive cal-culators as part of a financial planningor “needs analysis” discussion in a soft-ware or Web presentation. Since NASDConduct Rule 2210 prohibits projectionsor predictions of performance for invest-ments, the calculator should appear sep-arately from the discussion of specificproducts and the accompanying textmust avoid any implication that the cal-culator can be used to predict futureproduct performance.

NASD Conduct Rule 2210 does notspecify rates of return for use in theseinteractive calculators. However, theRule prohibits exaggerated, unwarranted,or misleading presentations and requiresthat members’ communications reflectthe inherent risks of investing. To avoideither exaggerating the potential returnsof investments or misguiding an investorabout how much he or she needs toinvest to reach a financial goal, membersshould limit the rates of return users canenter into interactive calculators.

Many interactive calculators permit theuser to see the hypothetical results ofcompounding an investment at a singlerate of return for 10, 20, 30, or moreyears. Illustrations of specific rates ofreturn for extended time periods maycreate unreasonable expectations andultimately mislead investors. Disclosureaccompanying the calculator mustclearly address this issue by explainingthat rates will vary over time,particularly for long-term investments.

If a calculator permits the use of highrates of return, the potential to misleadis increased. Interactive calculator pre-sentations generally depict aninvestment compounding over timewithout any fluctuation of principal.Nevertheless, investments that achievehigh rates of return often carry highervolatility. To avoid misleading the user,if high rates of return are permitted byan interactive calculator, the presenta-tion must clearly explain thatinvestments offering the potential forhigher rates of return also involve ahigher degree of risk to principal.

“ASK THE ANALYST”

27


Telemarketing Scripts

Q. Does the Telemarketing Rule(NASD Conduct Rule 2210) apply totelemarketing scripts used with institu-tional prospects or are they restricted toretail prospects?

A. NASD Rule 2211 does notdistinguish between institutional andretail prospects. It simply prohibits callsto residences prior to 8 a.m. or after 9p.m. in the recipient’s time zone withoutprior permission. In addition, the Rulemandates prompt disclosure of the fol-lowing information in a clear andconspicuous manner:

• the identity of the caller and the mem-ber firm;

• the telephone number or address atwhich the caller may be contacted; and

• that the purpose of the call is to solicitthe purchase of securities or relatedservices.

Q. Does the Telemarketing Rule applyto scripts used by representatives to follow-up with individuals who havealready requested and received aprospectus for a mutual fund?

A. Yes. Scripts used for this type offollow-up call must adhere to the timelimitations and disclosure requirementsnoted above. Only calls to certain typesof existing customers are exempt fromthese requirements.

Mutual Funds

Q. The Rankings Guidelines (IM-2210-3)were recently amended to permit the useof short-, medium-, and long-term totalreturn rankings in investment companycommunications if the ranking entitydoes not provide one-, five-, and ten-yearrankings. What time periods are consid-ered short, medium, and long?

A. The amendments to the Guidelinespublished in NASD Notice to Members97-28 do not specify time periodsbeyond short, medium, and long.However, in practice, the AdvertisingRegulation Department has not objectedto short-term rankings for periodsbetween one and four years, medium-term rankings for periods between fiveand nine years, and long-term rankingsfor periods of ten years or longer.

Variable Products

Q. The NASD stated in a recent Noticeto Members that group variable annuitysales are regulated under the NASDConduct Rules. Does my firm have to filegroup variable annuity advertising andsales literature with the AdvertisingRegulation Department within 10 days offirst use the way we do with other vari-able annuity material?

A. No. While most variable annuitiesare registered investment company secu-rities, group variable annuities generallyare not registered. The filing requirementapplies only to registered investmentcompany advertising and sales literature(see NASD Conduct Rule 2210(c)(1)).The requirement does not apply to groupvariable annuities unless the product hasbeen registered. Nevertheless, memberfirms may voluntarily submit group vari-able annuity communications to theAdvertising Regulation Department forreview.

Please note that the internal approval,recordkeeping, and content requirementsof NASD Conduct Rule 2210 apply toadvertising and sales literature on behalfof group variable annuities, whether ornot registered. In addition, groupvariable annuity advertising and sales lit-erature used by member firms and asso-ciated persons must adhere to theinterpretive standards set forth in IM-2210-2 “Communications with thePublic About Variable Life Insuranceand Variable Annuities.”

General

Q. Is the phrase “Member NASD”required in advertising and salesliterature?

A. No, such disclosure is purely volun-tary. If a firm chooses to include a refer-ence to NASD membership in itscommunications with the public, certainrestrictions apply. Any reference toNASD membership must:

• be separate from the regular text of theadvertisement or sales literature;

• appear in a smaller type size and withless emphasis than that used for themember’s name; and

• carry no direct or implied indication ofAssociation approval of any securityor service discussed in the advertise-ment or sales literature.

Please see IM-2210-4 “Limitations onUse of Association’s Name” for moredetail. ❏

28


SEC Approves An Amendment To The Three Quote Rule;Grants Exemptive Authority To The Staff Of NASD RegulationOn October 22, 1997, the SEC approvedan amendment to NASD Rule 2320(Three Quote Rule). The amendmentauthorizes the staff of NASDRegulation’s Office of General Counselto grant exemptions from the provisionsof the Three Quote Rule to memberswith respect to certain customer transac-tions in non-Nasdaq securities. (SECRel. No. 34-39266.)

The Three Quote Rule originally wasadopted as an amendment to theNASD’s best execution interpretationunder Article III, Section 1 of theNASD’s Rules of Fair Practice(currently NASD Rule 2110). Thatamendment expanded a member’s bestexecution obligation to customers byestablishing additional requirements forcustomer transactions in non-Nasdaqsecurities. In particular, the amendmentrequires members that execute transac-tions in non-Nasdaq securities on behalfof customers to contact a minimum ofthree dealers (or all dealers if three orless) and obtain quotations in determin-ing the best inter-dealer market.

This approach helps to ensure that mem-bers use reasonable diligence to ascer-

tain the best inter-dealer market for asecurity, and that the resultant price tothe customer in a purchase or sale in thatmarket is as favorable as possible underprevailing market conditions.

Some active dealers in the non-Nasdaqmarket have commented that the valueof the Three Quote Rule in certain situa-tions may hinder satisfaction of the bestexecution obligation because of the timedelays involved in contacting and col-lecting quotations from three separatedealers. In addition, some member bro-ker/dealers have questioned whether theThree Quote Rule should continue toapply to all customer transactions innon-Nasdaq securities due to the techno-logical and regulatory changes in thenon-Nasdaq marketplace, and in particu-lar, to the OTC Bulletin Board, over thepast seven years. Further, questionshave been raised regarding the applica-tion of the Rule to transactions withinstitutional customers.

NASD Regulation believes that generalexemptive authority under the Rule isappropriate to provide some flexibilityfor the staff to respond to changing market conditions and respond to fact-

specific situations. Should the staff exer-cise its authority, the grant of an exemp-tion to the Three Quote Rule would notabrogate a member’s best executionobligation. Moreover, the staff anticipatesthat the range of circumstances in whichexemptions may be granted will be limited to those circumstances in whichit can be shown that the application of the Three Quote Rule will hinder amember’s efforts to achieve best execu-tion and that approval of exemptionrequests generally would be infrequent.

Members seeking an exemption shouldmake a detailed, written submission tothe NASD Regulation Office of GeneralCounsel. If a particular exemptioninvolves a particular class of transactionsor class of customers that may be rele-vant to other member broker/dealers, thestaff will also publish such results to themembership through an NASD Notice to Members or similar communication.

Questions concerning this article may be directed to David A. Spotts, Office of General Counsel, NASD Regulation,at (202) 728-8071. ❏

Regulation

In a letter to The Nasdaq Stock Market,dated May 6, 1997, the Chief Counsel ofthe SEC’s Division of MarketRegulation (Division) stated that theDivision would not recommend enforce-ment action to the SEC pursuant to SECRule 10b-10(a) if NASD member firmssend average price or multiple capacityconfirmations to confirm singlecustomer orders, effected in multipleexecutions, in order to achieve best exe-

cution, provided such executions aredone in accordance with the letter.

This Division staff no-action positioncame about as a result of the implemen-tation of the SEC’s recently enactedOrder Handling Rules and changes tothe evolving standards of best executionof customer orders. It is now possiblethat a customer order in a Nasdaq secu-rity, received by a Nasdaq market

maker, may be executed by crossingsuch order either: (1) against other cus-tomer limit orders; (2) against the prin-cipal account of the market maker atmultiple prices in multiple lots; or (3)both. For example, Market Maker Amay be holding customer limit ordersfor a particular Nasdaq security to buy500 shares at 20 3/8, 500 shares at 201/4, and 500 shares at 20 1/8. WhenMarket Maker A receives a customer

SEC Provides Guidance To NASD Members Regarding The UseOf Average Price And Multiple Capacity Confirmations

29



NASD Regulation has introduced newfeatures to its Web Site that will benefitmembers, investors, reporters, and otherinterested parties. There are also someinteresting new additions indevelopment.

Registered Representative CornerExpanding on NASD Regulation’sobjective to educate registered represen-tatives (RRs), NASD Regulation hascreated a special area on the Web Sitededicated to their needs. Although theWeb Site already contains a lot of infor-mation of interest to RRs, this area willmake it much easier for RRs to quickly

find information that is directly pertinentto them, such as: NASD Rule filings,Frequently Asked Questions (FAQs),NASD Notices to Members, exam centerlocations, and links to other resources onthe Internet. The principal area of thisWeb Page is “What’s Hot for RRs.” Thisis where RRs can find new and importantinformation.

NASD Regulation welcomes suggestionsand comments on how to improve thisWeb Page. The RR Web Page includesan e-mail link where RRs can send ques-tions, and all are welcome to use theoverall Site’s Feedback Form as well.

Focus GroupAnyone interested in participating inNASD Regulation’s on-line focus groupis welcome to join. Before implement-ing major changes (such as new naviga-tion throughout the Site), NASDRegulation will ask this focus group toreview proposed changes and provide itsimpressions. All this is done on-line,and participants need not spend morethan a few minutes of their time, at theirconvenience. Visitors can sign up forthe focus group from our FeedbackForm.

market order to sell 2,000 shares of thatsecurity, Market Maker A may executethe 2,000 share order at multiple prices:20 3/8, 20 1/4, 20 1/8, and 20, for 500shares each. The last 500 shares(executed at 20) may be executed by themarket maker as principal, whereas theother 1,500 shares may be executed asagent by crossing the customer marketorder to sell against the customer limitorders.

Recognizing that the issuance of multi-ple confirmations for each part of theexecution of a single order could resultin higher aggregate confirmation feesrelated to the overall execution (whichtransaction costs might be borne, in part,by customers), which would, in turn,offset the price improvement resultingfrom the matching of the market orderand the limit order and cause confusionfor some customers that receive multipleconfirmations relating to an individualorder, the Division staff stated that mar-ket makers may seek to issue a singleconfirmation at a price that is an averageprice derived from the sum of each indi-vidual executions and that reflects themultiple capacities in which the firmcarried out multiple executions to fill thesingle order.

To the extent that a member firmchooses to issue such an average priceor multiple capacity confirmation for theexecution of a single order, the Divisionstaff stated that the member firm respon-sible for the confirmation must providethe following information required bySEC Rule 10b-10(a):

1. The market maker must average theexecution prices of each individualexecution that filled the market orderor crossing limit order and report theaverage price per share on the confir-mation as the unit price, with a nota-tion that the disclosed price is anaverage price. The confirmation mustnote that details regarding the actualprices are available to the customerupon request;

2. The confirmation must identify thecapacity in which the broker/dealeracted in executing the order as “prin-cipal,” agent,” or both “principal andagent,” as applicable, and that detailsregarding capacity of each executionare available upon request;

3. The commission, markup, markdown,service fee, and any other remunera-tion to the member associated withthe executions must not be detailed

separately, but must be stated in a sin-gle amount for the transaction as awhole; and

4. The confirmation must include allother information required by Rule10b-10(a), but not specifically men-tioned in items 1-3, above.

The Division staff also stated that eachNASD member firm issuing such confir-mations must create and maintainrecords as required under SEC Rules17a-3 and 17a-4 in a manner that wouldreflect the processing of such orders asdescribed above and permit the NASDmember to provide, at the request of any customer receiving a customer confirmation as described above, infor-mation regarding each individual execution and the capacity in which the NASD member acted in each underlying execution. Direct any and all questions regarding this matter to Peter D. Santori, Attorney, MarketRegulation, NASD Regulation, at (301) 208-2935.

The Internet

What’s New On The NASD Regulation Web Site?

30


NASD Regulation has maintained a suc-cessful Internet presence for more than ayear with it’s programs to facilitate thefiling of complaints and regulatory tips.Through the NASD Regulation WebSite (www.nasdr.com), investors—andothers—can immediately alert regula-tors to any fraudulent activities by mem-bers or associated persons throughsubmission of a complaint or regulatory

tip. Visitors to this area of the Site canalso submit general inquiries orcomments.

To file a customer complaint or regula-tory tip, enter the Web Site’s HomePage and click on the “Have AComplaint?” button to find speciallydesigned forms to input information.

This information is automatically andelectronically routed to the ComplianceDepartment for review and for forward-ing to the correct area within NASDRegulation, Nasdaq, or NASD forresponse and action. To date, the Department has received more than1,000 messages via this communicationsvehicle. ❏

Free E-mail Notifications In order to keep up-to-date with all thechanges to our Web Site, NASDRegulation encourages visitors to signup for one or more of three e-mail lists:

• News: New press releases, speeches,and other announcements.

• Site Changes: New features on theWeb Site.

• Publications: New issues of existingNASD Regulation publications.

After you subscribe you will get a shorte-mail whenever we post any of theitems listed above, depending uponwhich types of e-mails you elect toreceive. This is a very efficient way tobe notified of changes that are importantto you and your business, and it’s free.

OATS FAQsNASD Regulation has dedicated a sec-tion of the Web Site, under “MembersCheck Here,” to informing membersand interested parties of the status of thisimportant project – the Order AuditTrail System (otherwise known as

OATS). The OATS Web Page’s newestfeature is an area for FAQs. The OATSTeam will continue to add new FAQs asthe project evolves, and if you do notfind the answer to your question, youmay send an e-mail to the OATS staff,who will respond to your inquiry.

The Press Room: An InformationSource For ReportersIn order to facilitate a reporter’s abilityto find information, NASD Regulationhas created a special area wherereporters can find all they need underone page. Instead of surfing around theWeb Site for different features underdifferent areas, all the main sections ofinterest to reporters are grouped underone roof — the Press Room. There, visitors will find direct links to NASDNotices to Members, brokerinformation, and NASD rule filings.There also are e-mail links to the NASDRegulation Media Relations staff.

NASD Manual OnlineIn 1998, NASD Regulation will imple-ment a Web version of the NASDManual on the NASD Regulation Web

Site. With the help of ComplianceInternational, Inc., publishers of Bookson Screen™, NASD Regulation willbring you monthly updates of theManual at no cost.

With advanced searching capabilitiesand intuitive navigation, the NASDManual on-line, and all its sections(including past issues of NASD Noticesto Members), will be available 24 hoursa day, 365 days a year. NASD Regula-tion will provide more details in futureissues of this newsletter.

NASD Regulation will continue to pro-vide visitors with valuable informationon its Web Site. Look for the announce-ment of more new features in the nextissue of the Regulatory & ComplianceAlert. Remember, NASD Regulationencourages your suggestions for addi-tional content ideas. Please use the“Feedback” function to forward yourideas. ❏

Internet Provides Successful Mechanism For CustomerComplaints And Regulatory Tips

What’s New On The NASD Regulation Web Site?, from page 29

31


NASD Conduct Rule 3360 requireseach member firm to maintain a recordof total customer and proprietary shortpositions in Nasdaq securities and toreport those positions to NASDRegulation on a monthly basis. Memberfirms are also required to report toNASD Regulation short positions inexchange-listed securities that are notreported to any other SRO. Memberfirms are reminded that NASDRegulation must receive short interestdata for Nasdaq securities no later than6 p.m., ET, on the second business dayafter the reporting settlement date desig-

nated by the NASD. NASD Regulationmust receive short interest data forexchange-listed securities no later than 1 p.m., ET, on the designated reportingdate. Member firms are encouraged toreview NASD Notices to Members 95-8and 93-42, which address the NASD’spolicy with respect to the timely submis-sion of short interest data and the sanc-tions imposed.

Additionally, member firms are advisedthat, for the purposes of NASD ConductRule 3360, short positions to be reportedare those resulting from short sales as

that term is defined in SEC Rule 3b-3.Member firms should not reportpositions in accounts created by longsales for which stock has not yet beendelivered, as part of its monthly shortinterest position.

Questions regarding NASD ConductRule 3360 should be directed to YvonneHuber, Market Regulation, NASDRegulation, at (301) 590-6358. Torequest a schedule of designated shortinterest reporting settlement dates anddeadlines, contact Business ProgramSupport at (800) 321-6273. ❏

As member firms may already be aware,the process of distributing disclosureconversion information for member firmreview has been postponed until afterthe renewal season. The CRD/PublicDisclosure Department notified all firmsthat had already received their rosters ofthe problem and advised them to ceasereview of this information.

Initially, the CRD/Public DisclosureDepartment indicated it would resendupdated, corrected rosters to memberfirms in mid-October. However, theDepartment has since obtained feedbackfrom many members indicating that:

• instituting review of rosters during thetraditional renewal season would taxmany of the firms’ resources; and

• firms want to see an expansion of thetypes of converted data to include theverbatim registered representative andfirm comments found on the DRPs inQuestions 8C and 9.

Furthermore, NASD Regulation wantsto perform necessary quality checks toensure the integrity of the data.

In order to be responsive to these issues,NASD Regulation will send new rostersto member firms after the conclusion ofthe renewal cycle in early 1998. Theserosters will include the verbatim com-ments itemized in Questions 8C and 9 ofthe DRP forms. NASD Regulation willalso extend operation of the DisclosureConversion Team’s Call Center inChantilly, Virginia to address any ques-tions and/or concerns firms may havedue to their review of the newlyconverted rosters.

These converted records will form thebasis of information released to the public under NASD Regulation’s Public Disclosure Program, both via the Internet and in paper reporting format. Therefore, the goal of NASDRegulation is to ensure that the data is

a fair and accurate representation of thefacts surrounding each disclosure event.

NASD Regulation will continue to provide updates about the status of the disclosure roster distribution andreview, including associated mailingsand deadlines.

Questions about the disclosure conversion process may be directed to Barbara Z. Sweeney, Director,CRD/Public Disclosure Department,NASD Regulation, (301) 590-6734. ❏

Regulatory Short Takes

Market Regulation Reminds Member Firms Of Their ShortInterest Reporting Obligations

Disclosure Conversion Process Moving Forward

32


The NASD Regulation Office ofHearing Officers has developed a “plain English” explanation of theNASD’s disciplinary process designedto help respondents and their counselunderstand these procedures. To obtainthe Disciplinary Hearing ProceduresGuide, and an accompanying copy ofthe NASD Code of Procedure, contactthe NASD Regulation Office of HearingOfficers at (202) 728-8008. ❏

Order DisciplinaryHearing ProceduresGuide

Violations

21 Brokerage Firms And A Bank Fined $325,000 For Violating MSRB RulesNASD Regulation and the Office of theComptroller of the Currency (OCC)announced that, as the result of coordi-nated investigations with the SEC, 21brokerage firms and a division of anational bank have been fined a total of $325,000 and censured for violatingMSRB rules that require disclosure toinvestors in municipal securities. NASDRegulation sanctioned the 21 brokeragefirms and the OCC sanctioned the bank.

All 21 brokerage firms and the bank,which neither admitted nor denied theallegations, were sanctioned for violat-ing MSRB Rule G-36 by filing munici-pal securities underwriting documentslate. Without the filings mandated byRule G-36, investors lack easy access tokey information about the issuer, includ-ing its ability to repay bonds and, in thecase of an advance refunding, informa-tion about an escrow account that hasbeen established.

Rule G-36 requires that the sole or man-aging underwriter of a municipal securi-ties offering send the MSRB two copies

of the final official statement within onebusiness day of receiving the informa-tion from the issuer. In no case can theinformation be sent later than 10 busi-ness days after the final agreement topurchase, offer, or sell the securities. In the case of an advance refunding, the documents must be sent within fivebusiness days of the delivery of thesecurities. Investors can gain access to this important information aboutmunicipal securities through theMSRB’s Municipal SecuritiesInformation Library®.

Eight of the 21 firms were also sanc-tioned, in certain instances, for failing to file required documents at all; and aseparate group of eight of the 21 firmswere also sanctioned for not properlymailing the documents to MSRB—bothof which are mandated by Rule G-36.

Eleven of the 21 firms and the bankwere also sanctioned for not keepingrecords showing when they receivedrequired documents from the issuer, orwhen they sent those documents to the

MSRB, as required by MSRB Rule G-8.

“Every investor has the right to theinformation Rule G-36 provides. Notsupplying that critical disclosure, ormaking it available well after the fact,does not serve investors well. As aresult, it’s very important that everymunicipal securities firm lives up to itsresponsibilities to keep investorsinformed,” said Mary L. Schapiro,NASD Regulation President.

“It is important that banks and securitiesfirms alike provide the informationrequired under municipal securities RuleG-36,” said Comptroller of the CurrencyEugene A. Ludwig. “The OCC intendsto make sure that every national bankthat sells municipal securities providesthe information that individual investorsneed to make informed decisions.”

NASD Regulation and the OCC thankedthe SEC’s Office of ComplianceInspections and Examinations for itsassistance in bringing these cases.

The proposal for establishment of anOrder Audit Trail System, which willrequire members to capture and reportspecific data elements related to thehandling or execution of orders inNasdaq equity securities, is now pend-ing at the SEC. The filing may beamended prior to approval and mem-bers will be informed about potentialchanges to timing and the scope ofinformation required to be provided.

The OATS Support Center is the primary source for current informationon OATS. The Center is open Mondaythrough Friday from 8 a.m. until 6 p.m., ET. The e-mail address [email protected]; the telephone numbers are (888) 700-OATS and (301) 590-6503. General informationcan also be obtained from the OATSWeb Page at www.nasdr.com. ❏

OATS Update

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NASD Regulation announced thatMayer & Schweitzer, Inc., was fined$200,000 after settling charges that thefirm failed to get its customers the bestexecutions possible on five separateoccasions from December 1995 throughJune 1996.

In the settlement, Mayer & Schweitzerneither admitted nor denied allegationsthat it failed to provide the best execu-tion possible because it did not transmitmember-to-member customer limitorders for securities the firm did notmake a market in to another marketmaker that could have filled the orders.While Mayer & Schweitzer intended toforward the orders, its faulty proceduresprevented them from being transmitted.

A customer limit order, whether origi-nating from a public customer oranother market maker on behalf of acustomer, is an order to buy or sell astock at a price specified by thecustomer. NASD Regulation’s best exe-cution rule requires that brokerage firmsmake every effort possible to obtain themost favorable price available for everysecurity purchased or sold on behalf of acustomer.

These violations were investigated byNASD Regulation’s Market RegulationDepartment, and were based on thereceipt of five separate customer com-plaints.

NASD Regulation also found that thefirm failed to establish, maintain, andenforce written supervisory proceduresto prevent these violations. Additionally,NASD Regulation found that Mayer &Schweitzer failed to maintain records ofthe time and manner in which the firmsent customer limit orders to other mar-ket makers for execution.

Previously, on March 20, 1996, Mayer& Schweitzer entered into a separatesettlement, without admitting or denyingallegations of best execution and record-keeping violations. The firm was fined$75,000 as a result. ❏

Firms Sanctioned by NASD Regulation Amount

1. Bear, Stearns & Co. Inc. $25,0002. First of America Securities, Inc. $10,0003. First Southwest Company $10,0004. First Union Capital Markets Corp. $10,0005. Goldman, Sachs & Co. $25,0006. J. P. Morgan Securities Inc. $25,0007. Merrill Lynch, Pierce, Fenner & Smith Inc. $10,0008. Miller, Johnson & Kuehn, Inc. $10,0009. Morgan, Keegan & Co., Inc. $10,00010. Morgan Stanley & Co., Incorporated $10,00011. Oppenheimer & Co., Inc. $10,00012. PaineWebber Incorporated $25,00013. Piper Jaffray Inc. $10,00014. PNC Capital Markets, Inc. $10,00015. Prudential Securities Incorporated $25,00016. Raymond James and Associates $10,00017. Seattle-Northwest Securities Corp. $10,00018. Smith Barney Inc. $25,00019. Stone & Youngberg, LLC. $10,00020. SunTrust Capital Markets, Inc. $10,00021. Sutro & Co. Inc. $25,000

Bank Division Sanctioned by OCC Amount

1. Commerce Capital, a division of Commerce Bank, $10,000N.A. ❏

NASD Regulation Fines Mayer & Schweitzer $200,000 ForFailure To Provide Best Execution, As Well As Record-KeepingAnd Supervisory Violations

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• NASD Regulation filed disciplinarycharges against 33 former principals,brokers, and employees of the nowdefunct Long Island brokerage firm ofStratton Oakmont, Inc. The firm wasexpelled from the NASD inDecember 1996 because it posed “anon-going risk to the investing public.”

This complaint, which alleges a widerange of serious sales practice viola-tions by 33 individuals, is one of thelargest complaints of its type everbrought by NASD Regulation andresults from a continuinginvestigation into Stratton Oakmont’soperations. The complaint alleges that33 individuals, who were based atStratton Oakmont’s headquarters inLake Success, N.Y., engaged in anumber of fraudulent sales practicesand other misconduct from 1993through 1996. NASD Regulation alsoalleges that in many instances,Stratton Oakmont used preparedscripts (six of which are part of thecomplaint) as part of their aggressivetelemarketing efforts to sell specula-tive securities. The filing of an NASDRegulation complaint represents theinitiation of a formal proceeding.

• NASD Regulation’s Los AngelesDistrict Business Conduct Committee(DBCC) has ordered that San Diego-based La Jolla Capital Corp. be per-manently barred from selling pennystocks and that five of its senior offi-cials should be sanctioned for circum-venting the penny stock rules.

As a result of a 16-day hearing by theDBCC, La Jolla Capital and itsPresident Harold B.J. Gallison werefined more than $400,000 and arejointly responsible for repaying morethan 100 investors from 26 states, theDistrict of Columbia, and BritishColumbia almost $400,000. Theremaining four senior officials werefined a total of more than $150,000.

• NASD Regulation announced thatGKN Securities Corp., as well as 29brokers and supervisors, have beenfined $725,000. GKN Securities Corp.will repay more than $1.4 million toinvestors who were overcharged as theresult of a two-year-long program ofexcessive mark-ups in eight securities.

Nearly 1,300 investors from 39 statesand the District of Columbia and

Puerto Rico will receive paymentsfrom GKN. These overcharges wereuncovered after an investigation bythe national NASD RegulationEnforcement Department and itsDistrict Offices in New York andAtlanta.

• NASD Regulation announced thatD.H. Blair & Co. Inc., has been fined$2 million, and will repay almost $2.4 million to investors who wereovercharged as the result of excessivemark-ups in 16 securities, and of otherfraudulent conduct. D.H. Blair’sChief Executive Officer and HeadTrader were also fined a combined$525,000.

More than 3,100 retail customersfrom 43 states including the Districtof Columbia will receive restitutionpayments from D.H. Blair. The over-charging was uncovered after alengthy investigation by the nationalNASD Regulation EnforcementDepartment and its District Offices inBoston and Philadelphia. ❏

Significant Actions Brought Against Firms

In September, October, November, and December1997, the NASD announced the following discipli-nary actions against these firms and individuals.Publication of these sanctions alerts members andtheir associated persons to actionable behaviorand the penalties that may result.

District 1 - Northern California (the counties ofMonterey, San Benito, Fresno, and Inyo, and theremainder of the state north or west of such counties),northern Nevada (the counties of Esmeralda and Nye,and the remainder of the state north or west of suchcounties) and Hawaii

September ActionsNone

October ActionsLeonard John Ialeggio (Registered Representative,Danville, California) was fined $15,000 and ordered torequalify by exam as a general securities representative.The National Business Conduct Committee (NBCC)imposed the sanctions following a remand as to sanctionsfrom the SEC. The sanctions were based on findings thatIaleggio submitted expense vouchers to his member firm’sparent company and received payment for travel expensestotaling $9,868.50, to which he was not entitled. Ialeggioalso induced the company to pay $35,000 for his countryclub dues, a payment to which he was not entitled.

This action had been appealed to the SEC and the sanc-tions are not in effect pending consideration of the appeal.

James Wallace Wullschleger (Registered Representative,Piedmont, California) submitted an Offer of Settlementpursuant to which he was fined $6,300 and suspendedfrom association with any NASD member in any capacity

for 30 days (suspension deemed served). Without admit-ting or denying the allegations, Wullschleger consented tothe described sanctions and to the entry of findings that hesold limited partnerships to public customers while mis-representing the liquidity and safety of the securities, andthe risk of the investments. The findings also stated thatWullschleger sold limited partnership interests tocustomers that were unsuitable for the customers basedupon the facts disclosed by them as to their other securityholdings and their financial situations and needs.

November ActionsClyde Joseph Bruff (Registered Principal, Oakland,California) was barred from association with any NASDmember in any capacity. The NBCC affirmed the sanctionfollowing appeal of a San Francisco District BusinessConduct Committee (DBCC) decision. The sanction wasbased on findings that Bruff exercised effective controlover the account of a public customer and recommended toher the purchase and sale of securities that were unsuitable

NASD DISCIPLINARY ACTIONS

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for the customer in view of the size and frequency of thetransactions and her other securities holdings, financialsituation, and needs.

Bruff has appealed this action to the SEC and the sanc-tions, other than the bar, are not in effect pending consider-ation of the appeal.

Joseph Marc DiLeo (Registered Representative, Davis,California) was fined $40,000 and suspended from associ-ation with any NASD member in any capacity for 30 days.The sanctions were based on findings that DiLeo signedcustomer names to documents and submitted them to hismember firm.

James E. Dunniway, Sr. (Registered Principal, Newark,California) was fined $74,105 and barred from associationwith any NASD member in any capacity. The NBCCaffirmed the sanctions following appeal of a San FranciscoDBCC decision. The sanctions were based on findings thatDunniway engaged in excessive trading in a customer’saccount and engaged in a deceptive and fraudulent schemeto generate commissions.

December ActionsVicci Delores Havens (Registered Representative,Modesto, California) was fined $21,500, barred fromassociation with any NASD member in any capacity, andordered to pay $1,292.77 in restitution to a customer. Thesanctions were based on findings that Havens forged apublic customer’s name to account documents and acheck, submitted the documents to her member firm, andeffected an unauthorized trade in the customer’s account.Havens also deposited a $1,292.77 check made payable toa public customer to her personal bank account and usedthe proceeds for her own use.

District 2 - Southern California (that part of the statesouth or east of the counties of Monterey, San Benito,Fresno, and Inyo) and southern Nevada (that part of thestate south or east of the counties of Esmeralda andNye), and the former U.S. Trust territories

September ActionsWilliam K. Cantrell (Registered Principal, LosAngeles, California) was fined $2,500, suspended fromassociation with any NASD member as a financial andoperations principal for 10 days, and ordered to requalifyby exam as a financial and operations principal. The SECaffirmed the sanctions following appeal of a May 1996NBCC decision. The sanctions were based on findings thatCantrell permitted his member firm to effect securitiestransactions while failing to maintain the minimumrequired net capital.

October ActionsCameron Freeland Evans (Registered Representative,Manhattan Beach, California) was fined $750,000,barred from association with any NASD member in anycapacity, and ordered to pay $150,000 in restitution to apublic customer. The sanctions were based on findings thatEvans converted $150,000 from a public customer intend-ed for investment purposes without the knowledge or con-sent of the customer.

Michael A. Furr (Registered Representative, LakeForest, California) was fined $270,000, barred from asso-ciation with any NASD member in any capacity, andordered to pay $42,500 in restitution to a public customer.The sanctions were based on findings that Furr received$50,000 from a public customer for investment purposesand failed to deposit the funds into a securities account.Instead, Furr deposited the funds into a bank account andimproperly used the funds. Furr also failed to respond toNASD requests for information.

Patrick Wayne Maloy (Associated Person, Kingfisher,Oklahoma) was fined $55,000, barred from associationwith any NASD member in any capacity, and ordered to

pay $25,430 in restitution to a customer. The sanctionswere based on findings that Maloy was actively engaged inthe management of the securities business of a memberfirm without being registered as a principal of the firm.Maloy also provided a written guarantee against loss to acustomer and failed to respond to NASD requests forinformation.

Leonard Van McLendon, Jr. (RegisteredRepresentative, San Juan Capistrano, California) wasfined $175,000, barred from association with any NASDmember in any capacity, and ordered to pay $27,000 inrestitution to customers. The sanctions were based on find-ings that McLendon received checks totaling $27,000 frompublic customers for investment purposes and, instead,cashed the checks and converted the funds. McLendonalso failed to respond to NASD requests for information.

Thien Huu Nguyen (Registered Representative,Westminster, California) was fined $20,000 and barredfrom association with any NASD member in any capacity.The sanctions were based on findings that Nguyen failed torespond to NASD requests for information.

Jan Sanders (Registered Representative, Lake Forest,California) was fined $29,240, suspended from associa-tion with any NASD member in any capacity for 30 days,and required to requalify by exam as a general securitiesrepresentative. The sanctions were based on findings thatSanders recommended to a public customer the purchaseand sale of securities without having reasonable groundsfor believing the recommendations were suitable for thecustomer in view of the size, frequency and nature of therecommended transactions, and the facts disclosed by thecustomer as to his other securities holdings, financial situa-tion, circumstances, and needs.

Lance E. Van Alstyne (Registered Representative,Laguna Niguel, California) was fined $95,000 and barredfrom association with any NASD member in any capacity.The sanctions were based on findings that Van Alstyneengaged in the management of the securities business of amember firm without being registered as a principal of thefirm. Furthermore, Van Alstyne offered and sold securitiesto public customers for which a registration statement wasnot filed and in effect with the SEC and for which noexemption was applicable. In addition, Van Alstyne failedto respond to NASD requests for information and toappear for an on-the-record interview.

November ActionsJohn Brett Ballon (Registered Representative, Malibu,California) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $60,000 andbarred from association with any NASD member in anycapacity. Without admitting or denying the allegations,Ballon consented to the described sanctions and to theentry of findings that he churned a public customer’saccount by recommending and executing 91 purchase andsale transactions for the customer’s account without hav-ing reasonable grounds for believing that such recommen-dations were suitable in view of the frequency of therecommended transactions and the customer’s financialsituation, objectives, circumstances, and needs. The find-ings also stated that Ballon effected unauthorized transac-tions in a customer’s account and failed to respond toNASD requests to appear for an on-the-record interview.

My Ngoc Dang (Registered Representative, Alameda,California) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $10,000 andbarred from association with any NASD member in anycapacity. Without admitting or denying the allegations,Dang consented to the described sanctions and to the entryof findings that he failed to notify his current member firmof the existence of accounts with other member firms andfailed to advise the other firms that he was associated withhis current member firm. The findings also stated thatDang signed memoranda stating that he did not have asecurities account with any brokerage firm, despite theexistence of his member firm accounts.

Ann Marie Doty (Registered Principal, Marina DelRey, California) submitted a Letter of Acceptance,Waiver and Consent pursuant to which she was suspendedfrom association with any NASD member in any regis-tered capacity for 60 days and required to requalify byexam before acting in any capacity requiring registrationas a registered options principal. Without admitting ordenying the allegations, Doty consented to the describedsanctions and to the entry of findings that, while taking theregistered options principal qualification exam, Doty wasfound to be in possession of notes relating to the subjectmatter of the exam.

Glenn A. Dove (Registered Representative, SunsetBeach, California) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was suspendedfrom association with any NASD member in any capacityfor 15 business days and ordered to requalify by exam as ageneral securities representative. Without admitting ordenying the allegations, Dove consented to the describedsanctions and to the entry of findings that he effected vari-ous purchases and sales in securities in the account of pub-lic customers without the knowledge or consent of thecustomers.

Nicholas Mark Ellis (Registered Principal, Irvine,California) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $20,000 and sus-pended from association with any NASD member as ageneral securities principal for two years. Without admit-ting or denying the allegations, Ellis consented to thedescribed sanctions and to the entry of finding that a mem-ber firm, acting through Ellis, conducted a general securi-ties business but failed to designate a limited financial andoperations principal. The findings also stated that a mem-ber firm, acting through Ellis, executed options and munic-ipal transactions but failed to have and designate a registeredoptions principal and municipal securities principal.

Michael Edgar Goldstein (Registered Representative,Los Angeles, California), Jeffrey B. Goodman(Registered Representative, Calabasas, California),Jason Scott Neu (Registered Representative, SantaMonica, California), William Reininger (RegisteredRepresentative, Agoura, California), and JosephPatrick Hannan (Associated Person, Los Angeles,California). Goldstein and Goodman were each fined$5,000, suspended from association with any NASD mem-ber in any capacity for six months, and ordered to requali-fy by exam as a general securities representative. Neu wasfined $20,000 and barred from association with any NASDmember in any capacity and Reininger was fined $5,000,suspended from association with any NASD member inany capacity for six months, and ordered to requalify byexam as a limited representative for direct participationprograms. Hannan was fined $1,000 and suspended fromassociation with any NASD member in any capacity forsix months. The NBCC imposed the sanctions followingappeal of a Los Angeles DBCC decision. The sanctionswere based on findings that Goldstein, Goodman, Neu,Reininger, and Hannan failed to respond timely or fully toNASD requests for information.

Hannan has appealed this action to the SEC and his sanc-tions are not in effect pending consideration of his appeal.

Scott W. Lindquist (Registered Representative,Carlsbad, California) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$5,000 and suspended from association with any NASDmember in any capacity for 30 business days. Withoutadmitting or denying the allegations, Lindquist consentedto the described sanctions and to the entry of findings thathe signed customers’ names on various new account appli-cations and transfer forms to expedite the processing oftransactions in 10 new customer accounts without the cus-tomers’ prior knowledge or authorization.

36


Frank Anthony Monreal (Registered Representative,Moreno Valley, California) submitted a Letter ofAcceptance, Waiver and Consent pursuant to which hewas fined $379,755 and barred from association with anyNASD member in any capacity. Without admitting ordenying the allegations, Monreal consented to thedescribed sanctions and to the entry of findings that heconverted $13,436.66 from a public customer by instruct-ing the customer to endorse a proceeds liquidation checkintended for deposit in the customer’s account, and effec-tively converted those funds to the use of his girlfriendwithout the customer’s knowledge or consent. The find-ings also stated that Monreal converted $62,514.38 from apublic customer’s account by opening a joint mutual fundaccount with the customer away from his member firmwithout the customer’s knowledge or consent, and there-after transferring funds from the account to an account hecontrolled.

Anthony C. Nuzzo (Registered Representative, Venice,California) was fined $25,000 and required to requalify byexam as a representative. The sanctions were based onfindings that Nuzzo recommended and effected for theaccount of a public customer purchase and sale transac-tions in shares of investment companies without havingreasonable grounds for believing that such recommenda-tions were suitable for the customer in light of her financialsituation and needs, the inappropriate nature of investmentcompany shares for use as a short-term trading vehicle,and the frequency and costs of the transactions.

Allen B. Olander (Registered Representative,Lancaster, California) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$5,000 and suspended from association with any NASDmember in any capacity for five business days. Withoutadmitting or denying the allegations, Olander consented tothe described sanctions and to the entry of findings that heparticipated in private securities transactions, but failed toprovide prior written notification to his member firm.

December ActionsMichael J. Baker (Registered Representative, BeverlyHills, California) submitted an Offer of Settlement pur-suant to which he was fined $100,000 and barred fromassociation with any NASD member in any capacity.Without admitting or denying the allegations, Baker con-sented to the described sanctions and to the entry of find-ings that he effected unauthorized purchases of securitiesin the accounts of public customers. The findings also stat-ed that Baker exercised discretion in the accounts of publiccustomers without having a signed discretionary agree-ment giving him such authorization. Furthermore, theNASD found that Baker established a fictitious securitiesaccount in the name of public customers, used acustomer’s address, social security number, and telephonenumber, and purchased shares of common stock withoutthe knowledge or authorization of the customers.

Bernadette Jones (Registered Representative, Pomona,California) was fined $3,500, suspended from associationwith any NASD member in any capacity for six months,ordered to requalify by exam as a general securities repre-sentative, and ordered to pay $2,516.56 in restitution to amember firm. The sanctions were based on findings thatJones received $6,000 from a public customer for the pur-pose of purchasing a life insurance policy. Jones submittedthe insurance application with a money order for $1,483.44to her member firm and misused the remainder of thefunds for her personal expenses. In addition, Jones submit-ted to her member firm a Form U-4 that contained falseand misleading information.

This action has been called for review by the NBCC andthe sanctions are not in effect pending consideration of theappeal.

L. H. Friend, Weinress, Frankson & Presson, Inc.(Irvine, California) and Larry H. Friend (RegisteredPrincipal, Newport Beach, California) submitted anOffer of Settlement pursuant to which they were fined$30,000, jointly and severally. Without admitting or deny-

ing the allegations, the respondents consented to thedescribed sanction and to the entry of findings that the firmdid not possess the account documentation required by theNASD’s Free-Riding and Withholding Interpretation todemonstrate that 23 accounts were not restricted from pur-chasing shares in an initial public offering. The findingsalso stated that Friend failed to establish, implement, andenforce reasonable supervisory procedures designed toprevent the above violations.

Nancy Hoff Martin (Registered Principal, Tustin,California) was fined $20,000 and barred from associationwith any NASD member in any capacity. The sanctionswere based on findings that Martin allowed two unregis-tered persons to use her account executive number toengage in the securities business, and failed to maintain orenforce procedures designed to prevent associated individ-uals from effecting securities transactions without beingproperly registered.

Martin has appealed this action to the NBCC and the sanc-tions are not in effect pending consideration of the appeal.

James Basil Peters (Registered Representative,Oxnard, California) was fined $3,500 and suspendedfrom association with any NASD member in any capacityfor 30 days. The sanctions were based on findings thatPeters signed a bank branch manager’s name to documentsin an attempt to improperly obtain commissions.

Peters has appealed this action to the NBCC and the sanc-tions are not in effect pending consideration of the appeal.

District 3 - Alaska, Arizona, Colorado, Idaho, Montana,New Mexico, Oregon, Utah, Washington, and Wyoming

September ActionsBlack & Company, Inc. (Portland, Oregon) and DennisBurton Reiter (Registered Principal, Portland, Oregon)submitted a Letter of Acceptance, Waiver and Consentpursuant to which they were fined $20,000, jointly andseverally. Reiter also was required to requalify by takingthe Series 7 and 24 exams. In addition, the firm must retainan independent consultant to review the firm’s trading andmarket making practices and its written procedures, makerecommendations based upon that review to the firm, andprepare a written report detailing its recommendations.Without admitting or denying the allegations, the respon-dents consented to the described sanctions and to the entryof findings that the firm executed principal transactionsand subsequently provided customers written confirmationof the transactions, incorrectly representing that the firmhad acted as an agent, when in fact, they were principaltransactions.

The NASD also found that the firm incorrectly reportedthrough the Automated Confirmation TransactionServiceSM (ACTSM) purchase transactions as sale transac-tions and sale transactions as purchase transactions, failedto use a bunched indicator on transaction reports when thefirm reported multiple transactions in a trade report, andreported the transaction prices of a security incorrectly.The findings also stated that Reiter failed to establish,maintain, or implement adequate written or unwritten pro-cedures to detect the inaccurate disclosure of principaltransactions as agent, the understatement of total compen-sation on customer confirmations, and the inaccuratereporting of transactions through ACT.

Terrence A. Buttler (Registered Principal, Denver,Colorado) and Lori L. Foster (Associated Person,Aurora, Colorado) submitted Offers of Settlement pur-suant to which Buttler was fined $15,000 and suspendedfrom association with any NASD member in any principalcapacity for two years. Foster was fined $10,000 and sus-pended from association with any NASD member in anycapacity for two years. Without admitting or denying theallegations, the respondents consented to the describedsanctions and to the entry of findings that Buttler permittedhis member firm to conduct a business while failing tomaintain its required net capital. The findings also stated

that Buttler permitted his member firm to maintain inven-tory in amounts that exceeded the inventory limitation ofthe firm’s restriction agreement, and permitted the firm’sbalance sheet to carry certain assets as allowable for netcapital purposes without obtaining the NASD’s prior con-sent to such treatment as required by the restriction agree-ment. Furthermore, the NASD determined that Fosterfailed to appear and provide information at an NASD on-the-record interview.

Jeffrey J. Cline (Registered Principal, Salt Lake City,Utah) submitted an Offer of Settlement pursuant to whichhe was fined $10,000. Without admitting or denying theallegations, Cline consented to the described sanction andto the entry of findings that a member firm, acting throughCline, recommended and sold securities that were neitherregistered nor exempt from registration.

Phillips & Company Securities, Inc. (Portland, Oregon)and Timothy Charles Phillips (Registered Principal,Portland, Oregon) submitted a Letter of Acceptance,Waiver and Consent pursuant to which they were fined$20,000, jointly and severally. The firm also must pre-fileall scripts with the NASD no later than 10 days prior totheir use for one year. Without admitting or denying theallegations, the respondents consented to the describedsanctions and to the entry of findings that the firm, actingthrough Phillips, prepared telemarketing scripts that wereavailable to the firm’s sales force that failed to provide asufficient basis for evaluating the facts regarding the spe-cific securities offered. According to the findings, some ofthe scripts, standing on their own, failed to disclose certainrisks associated with the subject recommendation, con-tained predictions and projections of investment results,and made references to the firm’s past recommendations.The NASD also determined that the scripts failed to offerto furnish, upon request, available investment informationin support of each recommendation and failed to includethe date of first use.

Scott Richard Stewart (Registered Representative, SaltLake City, Utah) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$25,000 and barred from association with any NASDmember in any capacity. Without admitting or denying theallegations, Stewart consented to the described sanctionsand to the entry of findings that he participated in outsidebusiness activities without providing prior written notice tohis member firm of such activities. The findings also statedthat Stewart made improper use of customer funds in thathe received funds from public customers for the purchaseof mutual funds, failed to forward the entire amount to thefunds, and kept $1,680 for his own use and benefit.

October ActionsVincent E. Barborka (Registered Representative,Midvale, Utah) submitted a Letter of Acceptance, Waiverand Consent pursuant to which he was fined $500,000,barred from association with any NASD member in anycapacity, and required to pay $97,592.33 in restitution to acustomer. Without admitting or denying the allegations,Barborka consented to the described sanctions and to theentry of findings that he forged the signature of a publiccustomer on several life insurance surrender forms, changeof ownership forms, and loan request forms, and thenforged the customer’s signature on the checks issued as aresult of the forged forms and endorsed the checks to him-self. The NASD found that, as a result of this, Barborkaconverted at least $97,592.33 to his control and used thosemonies for personal purposes.

Miriam R. Black (Registered Representative, Denver,Colorado) submitted a Letter of Acceptance, Waiver andConsent pursuant to which she was fined $10,000, sus-pended from association with any NASD member in anycapacity for one year, and ordered to disgorge $9,015 incommissions. Without admitting or denying the allega-tions, Black consented to the described sanctions and tothe entry of findings that she recommended and effectedmutual fund switches for the accounts of five public cus-tomers that were not suitable based on their financial situa-tion and needs.

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Excel Financial, Inc. (Salt Lake City, Utah) and GaryR. Beynon (Registered Principal, Salt Lake City, Utah)submitted a Letter of Acceptance, Waiver and Consentpursuant to which they were fined $20,000, jointly andseverally. The firm also shall provide to the NASD, withrespect to private placements of securities for which itfunctions as the sole or lead placement agent, an opinionof counsel that the offering was made in conformity withall applicable provisions of the federal securities laws andregulations promulgated thereunder, and Beynon wasrequired to requalify by exam as a general securities prin-cipal. Without admitting or denying the allegations, therespondents consented to the described sanctions and tothe entry of findings that the firm, acting through Beynon,participated in a private placement offering and failed toreturn investors’ funds when the terms of the contingencyoffering were not met. The NASD also determined that thefirm, acting through Beynon, conducted a securities busi-ness while failing to maintain its minimum required netcapital.

Gilbert Marshall & Company, Inc. (Greeley, Colorado)and Michael A. Usher (Registered Principal, Greeley,Colorado) submitted an Offer of Settlement pursuant towhich they were fined $15,000, jointly and severally, andUsher was suspended from association with any NASDmember in any principal capacity, excluding the capacitiesof financial and operations principal and registered optionsprincipal, for six months. Without admitting or denying theallegations, the respondents consented to the describedsanctions and to the entry of findings that the firm, actingthrough Usher, settled customer complaints with a settle-ment agreement that contained an agreement by the cus-tomer not to initiate or pursue any regulatory complaint.The NASD also determined that Usher failed to provideaccurate and truthful information in response to NASDrequests for information.

Investment Management & Research, Inc. (St.Petersburg, Florida) and Kenneth Craig Krull(Registered Representative, Marysville, Washington).The firm was fined $10,000, required to submit satisfacto-ry written supervisory procedures to the NASD, andrequired to pay $42,785.21 in restitution to customers.Krull was fined $20,000, barred from association with anyNASD member in any principal or supervisory capacity,suspended from association with any NASD member inany capacity for one year, required to pay $171,140.93 inrestitution to customers, and required to requalify by examas a general securities representative. The NBCC imposedthe sanctions following appeal of a Seattle DBCC deci-sion. The sanctions were based on findings that Krull rec-ommended unsuitable mutual fund switches in theaccounts of public customers without having reasonablegrounds for believing that such transactions were suitablefor the customers in view of the frequency of the transac-tions, the type of transaction being recommended, and thecustomers’ financial situations, circumstances, and needs.The firm failed to ensure that Krull’s sales activities wereadequately reviewed and monitored to ensure those salesactivities were not in contravention of the NASD’s Rules.Furthermore, the firm also failed to have supervisory pro-cedures that were reasonably designed to detect mutualfunds switches in Krull’s branch office.

Krull has appealed this action to the SEC and the sanc-tions, other than the bar, are not in effect pending consider-ation of the appeal.

Gerard H. Lilley (Registered Representative,Chandler, Arizona) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$25,000, barred from association with any NASD memberin any capacity, and required to pay $5,031.35 in restitu-tion to a customer. Without admitting or denying the alle-gations, Lilley consented to the described sanctions and tothe entry of findings that he received from a public cus-tomer a $4,700 check made payable to him intended forinvestment purposes. The NASD found that Lilley deposit-ed the funds into his personal account, used the fund forhis own benefit, and misled the customer to believe thefunds were invested.

Samuel J. Lopez (Registered Representative, Denver,Colorado) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $110,000, barredfrom association with any NASD member in any capacity,and required to pay $10,000 in restitution to a customer.Without admitting or denying the allegations, Lopez con-sented to the described sanctions and to the entry of find-ings that he received $20,000 from public customers forinvestment purposes, deposited the funds into a bankaccount under his control, and used the funds for his bene-fit. The findings also stated that Lopez prepared and deliv-ered a document purporting to confirm to a publiccustomer that the customer had purchased shares of anannuity when no such purchase had been made.Furthermore, the NASD found that Lopez presented to hismember firm copies of checks purporting to represent thereimbursement of funds to customers when he knew thechecks were drawn on an account that lacked sufficientfunds.

John Ranay (Registered Representative, Englewood,Colorado) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $10,000 and sus-pended from association with any NASD member in anycapacity for two years. Without admitting or denying theallegations, Ranay consented to the described sanctionsand to the entry of findings that he submitted a Form U-4that contained false and incomplete information.

Jerome Neal Schneider (Registered Principal,Vancouver, British Columbia) and Peter AlanProvence (Registered Principal, Pasadena, California)submitted an Offer of Settlement pursuant to whichSchneider was fined $32,000 and suspended from associa-tion with any NASD member in any capacity for 30 days.Provence was fined $10,000 and suspended from associa-tion with any NASD member in any capacity for five days.Without admitting or denying the allegations, the respon-dents consented to the described sanctions and to the entryof findings that Schneider, exercising discretion grantedpursuant to oral and written authority, implicitly recom-mended transactions for the account of a public customerthat were unsuitable for the customer in light of the sizeand frequency of the transactions, including the use ofmargin, in view of the financial resources and character ofthe account, the customer’s other security holdings, andfinancial situation and needs.

The findings also stated that Schneider submitted a FormU-4 to the NASD that failed to disclose a customer com-plaint. Furthermore, the NASD determined that Provencefailed to supervise properly and adequately Schneider’sactivities to assure compliance with the NASD ConductRules in that, among other things, Provence failed to ade-quately review and monitor the discretionary trading activ-ity in a customer’s account to detect and preventtransactions that were excessive in size or frequency inview of the financial resources and character of theaccount. The NASD also found that Schneider andProvence failed to establish adequate written or unwrittenprocedures to carry out supervision of discretionary trad-ing, as engaged in by Schneider, to ensure his compliancewith the applicable Conduct Rules.

Arthur W. Taylor (Registered Representative, Phoenix,Arizona) submitted an Offer of Settlement pursuant towhich he was barred from association with any NASDmember in any capacity. Without admitting or denying theallegations, Taylor consented to the described sanction andto the entry of findings that he completed a Form U-4 thatfailed to disclose SEC injunctive proceedings and aConsent Order.

November ActionsKevin J. Brafford (Registered Representative, Tempe,Arizona) submitted an Offer of Settlement pursuant towhich he was fined $30,000, barred from association withany NASD member in any capacity, and required to reim-burse his member firm $4,000. Without admitting or deny-ing the allegations, Brafford consented to the describedsanctions and to the entry of findings that he acceptedfunds totaling $4,000 from a public customer by represent-

ing that such funds were payments for the preparation of afinancial plan and failed either to provide such a plan orreturn the funds. The findings also stated that Braffordfailed to respond to NASD requests for information.

Douglas A. Glaser (Registered Representative,Evergreen, Colorado) was fined $30,000 and barred fromassociation with any NASD member in any capacity. Thesanctions were based on findings that Glaser failed to dis-close a felony charge on a Form U-4 and failed to respondto NASD requests for information.

William Leslie Walters (Registered Representative,Highlands Ranch, Colorado) submitted an Offer ofSettlement pursuant to which he was fined $14,409 andrequired to requalify by exam. Without admitting or deny-ing the allegations, Walters consented to the describedsanctions and to the entry of findings that he effected trans-actions in the accounts of public customers without firstobtaining the authorization of the customers. The findingsalso stated that Walters misrepresented the value of securi-ties in a customer’s account.

Russell Leroy Whittaker (Registered Representative,Coalville, Utah) was fined $50,000, barred from associa-tion with any NASD member in any capacity, and orderedto pay restitution to a customer. The sanctions were basedon findings that Whittaker borrowed $10,000 from a publiccustomer and, in connection with his solicitation of theloan, used a signature guarantee stamp from a formeremployer to create the false appearance that his signatureon the promissory note was guaranteed by a corporateentity when in fact he knew no such guarantee existed.Furthermore, Whittaker was aware of and failed to dis-close that he contravened the written supervisory proce-dures of his member firm that prohibited registeredrepresentatives from borrowing money from the firm’sclients. Moreover, Whittaker failed to disclose his priordefaults on certain loans, failed to disclose that the signa-ture stamp was not valid, and failed to repay the loan.

December ActionsAspen Capital (Denver, Colorado) and Stephen B.Carlson (Registered Principal, Denver, Colorado)were fined $10,000, jointly and severally, and Carlson wasbarred from association with any NASD member in anycapacity. The NBCC imposed the sanctions followingappeal of a DBCC decision. The sanctions were based onfindings that Carlson, acting for himself and on behalf ofthe firm, attempted to obtain stock at below market pricesby means of threats, intimidation and coercion.

Carlson has appealed this action to the SEC and the sanc-tions, other than the bar, are not in effect pending consider-ation of the appeal.

Robert A. Quiel (Registered Principal, BermudaDunes, California) was fined $12,500, suspended fromassociation with any NASD member in any capacity for 30days, and required to requalify by exam as a general secu-rities principal and general securities representative. TheSEC affirmed the sanctions following appeal of an October1996 NBCC decision. The sanctions were based on find-ings that Quiel effected principal retail transactions withcustomers involving securities at prices that were unfairand excessive, with markups ranging from eight to 40 per-cent above the prevailing market price. Quiel also failed torespond completely to NASD requests for information.

Eric Slane (Registered Representative, Seattle,Washington) was fined $10,000 and barred from associa-tion with any NASD member in any capacity. The sanc-tions were based on findings that Slane filed an inaccurateForm U-4 and submitted the form to his member firm to beforwarded to the NASD.

Slane has appealed this action to the NBCC and the sanc-tions are not in effect pending consideration of the appeal.

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Barry R. Strauss (Registered Representative, Tempe,Arizona) and Robert S. Tryon (RegisteredRepresentative, Mesa, Arizona) submitted an Offer ofSettlement pursuant to which Strauss was fined $20,000and barred from association with any NASD member inany capacity. Tryon was fined $10,000 and barred fromassociation with any NASD member in any capacity.Without admitting or denying the allegations, the respon-dents consented to the described sanctions and to the entryof findings that Strauss and Tryon engaged in outside busi-ness activities for compensation without providing promptwritten notice of such activities to their member firm. Thefindings also stated that Strauss represented to the publicthat he was offering securities but failed to identify hismember firm as the broker/dealer that he was associatedwith for purposes of securities transactions. Furthermore,the NASD found that Strauss provided inaccurate informa-tion in response to an NASD request for information.

District 4 - Iowa, Kansas, Minnesota, Missouri,Nebraska, North Dakota, and South Dakota

September ActionsRoland Stanley Williams (Registered Representative,Brooklyn, New York) was fined $30,000 and barred fromassociation with any NASD member in any capacity. Thesanctions were based on findings that Williams executedunauthorized transactions in the accounts of public cus-tomers without their knowledge or consent. Williams alsoattempted to negotiate a settlement with a customer with-out his member firm’s knowledge in response to the cus-tomer’s complaint regarding an unauthorized transaction.

October ActionsCharlotte S. Cohen & Company, Inc. (St. Louis,Missouri) submitted an Offer of Settlement pursuant towhich the firm was fined $17,500. Without admitting ordenying the allegations, the firm consented to thedescribed sanctions and to the entry of findings that itmade erroneous computations in computing its specialreserve requirement and contravened SEC Rule 15c3-3 bywithdrawing funds from its special reserve account with-out an accompanying reserve computation upon which thewithdrawal was based. The findings also stated that thefirm conducted a securities business while failing to main-tain its minimum required net capital and failed to prepareits books and records properly.

November ActionsDaniel Grady Bayer (Registered Representative,Kansas City, Missouri) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$62,425 and barred from association with any NASDmember in any capacity. Without admitting or denying theallegations, Bayer consented to the described sanctions andto the entry of findings that he received $20,485 from pub-lic customers for investment purposes, failed to apply thefunds as directed by the customers, and instead misusedand converted the funds to his own use and benefit withoutthe customers’ knowledge or consent.

Paul Dennett Crawford (Registered Representative,Minneapolis, Minnesota) submitted a Letter ofAcceptance, Waiver and Consent pursuant to which hewas suspended from association with any NASD memberin any capacity for two years and required to requalify byexam as a general securities representative. Without admit-ting or denying the allegations, Crawford consented to thedescribed sanctions and to the entry of findings that heparticipated in private securities transactions without giv-ing prior written notice to, and receiving written approvalfrom, his member firm.

Jeff Alan Einfalt (Registered Representative, Lincoln,Nebraska) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $8,013, suspendedfrom association with any NASD member in any capacityfor 10 business days, and required to requalify by exam.

Without admitting or denying the allegations, Einfalt con-sented to the described sanctions and to the entry of find-ings that he shared in an account with a public customer ata member firm without obtaining prior written authoriza-tion from the member firm carrying the account. The find-ings also stated that Einfalt recommended to a publiccustomer a series of securities transactions that wereexcessive in size and frequency in light of the customer’sliquid net worth and investment objective of capital appre-ciation. Furthermore, the NASD determined that Einfaltrecommended that public customers take out a loan collat-eralized by a certificate of deposit for the purpose of open-ing an account at his member firm and purchasingsecurities, and recommended that a customer take anadvance from a margin account to fund a loan to a publiccustomer to meet a margin call on the customer’s account.

Mark Lynn Mortensen (Registered Representative,Fairfax, Minnesota) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$35,000 and barred from association with any NASDmember in any capacity. Without admitting or denying theallegations, Mortensen consented to the described sanc-tions and to the entry of findings that he forged customersignatures on insurance product forms without the cus-tomers’ knowledge or consent. The findings also statedthat Mortensen prepared, forged signatures, and submittedlife insurance applications and exchange request forms fortwo customers without their knowledge or consent for thepurpose of receiving $6,584 in commissions.

Gene Albert Riedinger (Registered Representative,Bismarck, North Dakota) submitted a Letter ofAcceptance, Waiver and Consent pursuant to which hewas fined $20,000 and barred from association with anyNASD member in any capacity. Without admitting ordenying the allegations, Riedinger consented to thedescribed sanctions and to the entry of findings that hefailed to respond to NASD requests for information.

Gary Allen Sebbert (Registered Representative,Muscatine, Iowa) submitted an Offer of Settlement pur-suant to which he was fined $10,000 and suspended fromassociation with any NASD member in any capacity forone year. Without admitting or denying the allegations,Sebbert consented to the described sanctions and to theentry of findings that he affixed customer signatures oninsurance and/or securities product forms without the cus-tomers’ knowledge or consent. Sebbert’s suspension beganJanuary 31, 1996 and concluded January 31, 1997.

Thomas G. Streich (Registered Representative, AppleValley, Minnesota) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$288,714 and barred from association with any NASDmember in any capacity. Without admitting or denying theallegations, Streich consented to the described sanctionsand to the entry of findings that he submitted false addresschange forms, requested loans against traditional and/orvariable life and annuity contracts, received and endorsedloan proceeds checks made payable to the customers, andconverted $57,742.84 in customer funds to his own useand benefit.

Larry Dean Vandervoort (Registered Representative,Omaha, Nebraska) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$5,000 and suspended from association with any NASDmember in any capacity for 10 days. Without admitting ordenying the allegations, Vandervoort consented to thedescribed sanctions and to the entry of findings that herecommended and placed orders for the purchase and saleof securities in the individual retirement accounts of publiccustomers without having a reasonable basis for believingthe transactions were suitable for the customers basedupon the frequency of these transactions and thecustomers’ investment objectives and financial situations.

December ActionsAron Oleg Bronstein (Registered Principal, Brooklyn,New York) submitted an Offer of Settlement pursuant towhich he was fined $5,000 and suspended from association

with any NASD member in any capacity for 30 days.Without admitting or denying the allegations, Bronsteinconsented to the described sanctions and to the entry offindings that he submitted orders for purchases of stock forfictitious customer accounts.

Daniel Lee Cheloha (Registered Representative,Omaha, Nebraska) was fined $20,000 and barred fromassociation with any NASD member in any capacity. Thesanctions were based on findings that Cheloha failed torespond to NASD requests for information.

Eddie Samuel Freeman, II (Registered Principal, St.Louis, Missouri) submitted an Offer of Settlement pur-suant to which he was fined $33,641.35, barred from asso-ciation with any NASD member in any capacity, andordered to pay $6,728.27 plus interest in restitution.Without admitting or denying the allegations, Freemanconsented to the described sanctions and to the entry offindings that he issued checks totaling $6,728.27 from hismember firm’s bank account made payable to himself,deposited the checks into his personal account, and utilizedthe proceeds from the checks for his own use and benefitwithout the knowledge or consent of his member firm. Thefindings also stated that he improperly used the proceedsfrom short sales of securities to pay for the purchase ofwarrants to cover the short sales. In addition, the NASDfound that Freeman failed to respond to NASD requestsfor information.

Marty Ross Jones (Registered Representative,Richfield, Minnesota) was fined $30,000, barred fromassociation with any NASD member in any capacity, sus-pended from association with any NASD member in anycapacity for two years, and required to requalify by exam.The sanctions were based on findings that Jones receivedchecks totaling $4,602.38 representing the cash surren-dered from life insurance policies of public customers and, without the knowledge or consent of the customers,endorsed and deposited the checks into his personal bankaccount and misused the funds. Jones also failed torespond to NASD requests for information.

Jeffrey Dean Lee (Registered Principal, Wichita,Kansas) was fined $20,000 and barred from associationwith any NASD member in any capacity. The sanctionswere based on findings that Lee failed to respond to NASDrequests for information.

Steven James Reimer (Registered Representative,Vancouver, Washington) submitted an Offer ofSettlement pursuant to which he was fined $15,000 andsuspended from association with any NASD member inany capacity for three months. Without admitting or deny-ing the allegations, Reimer consented to the describedsanctions and to the entry of findings that a member firm,acting through Reimer, sold shares of common stock toinvestors by intentionally or recklessly employing devicesintended to defraud these investors and omitted to statematerial facts necessary to make the statements made inthe private placement memorandum not misleading.

Ronald Howard Tjarks (Registered Representative,Hastings, Nebraska) was fined $340,000 and barred fromassociation with any NASD member in any capacity. Thesanctions were based on findings that Tjarks affixed a cus-tomer’s signature on annuity withdrawal forms and with-drawal checks totaling $94,000 without the knowledge orconsent of the customer. In addition, Tjarks depositedwithdrawal checks totaling $54,000 into his personal bankaccount and converted the funds to his own use and benefitwithout the knowledge or consent of the customers. Tjarksalso failed to respond to NASD requests for information.

District 5 - Alabama, Arkansas, Kentucky, Louisiana,Mississippi, Oklahoma, and Tennessee

September ActionsGerry M. Gordon (Registered Representative,Gulfport, Mississippi) submitted an Offer of Settlementpursuant to which he was fined $131,000, barred from

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association with any NASD member in any capacity, andordered to pay $70,830.73 in restitution. Without admittingor denying the allegations, Gordon consented to thedescribed sanctions and to the entry of findings that heborrowed $52,167.98 from public customers when heknew or should have known that he did not have the abilityto repay the loans. The findings also stated that Gordonengaged in an outside business activity whereby he pur-chased and sold jewelry on behalf of customers withoutprior written notice to or approval from his member firm.Furthermore, the NASD determined that Gordon failed torespond to NASD requests for information.

Timothy D. Ross (Registered Representative, Tulsa,Oklahoma) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $10,000 andbarred from association with any NASD member in anycapacity, with the right to re-apply for association with amember firm after a period of one year. Without admittingor denying the allegations, Ross consented to the describedsanctions and to the entry of findings that he recommendedand engaged in a strategy of short-term trading of equitiesin the joint account of public customers without havingreasonable grounds for believing that the recommenda-tions and resultant transactions were suitable for the cus-tomers based on their financial situation, investmentobjectives, and needs. The findings also stated that Rossexecuted unauthorized transactions in the account of pub-lic customers without their knowledge or consent. TheNASD also found that Ross completed a new account cardon behalf of public customers that inaccurately reflected acustomer’s investment experience and overstated the cus-tomer’s income and net worth. Furthermore, the NASDdetermined that Ross sent correspondence to public cus-tomers that falsely reflected the value of certain securitiesheld in the customers’ account and failed to obtain priorapproval of the correspondence from a principal of hismember firm.

Randolph N. Strickland (Registered Representative,Birmingham, Alabama) was fined $120,000 and barredfrom association with any NASD member in any capacity.The sanctions were based on findings that Stricklandcaused three checks totaling $8,050 to be withdrawn fromthe IRA account of a public customer and converted thefunds to his own use and benefit by forging the customer’ssignature on the checks and depositing them into his per-sonal checking account, without the customer’s knowledgeor consent. In addition, Strickland engaged in outsidebusiness activities without prior written notice to orapproval from his member firm, received two checks total-ing $4,770 that had been drawn on the IRA account of apublic customer, and converted the monies to his own useand benefit, without the customer’s knowledge or consent.Furthermore, Strickland recommended that a public cus-tomer transfer funds from a corporate-sponsored retire-ment fund into a self-directed IRA that was unsuitable forthe customer on the basis of his financial situation, invest-ment objectives, and needs. Strickland also failed torespond to NASD requests for information.

October ActionsJohn R. Atchley (Registered Representative, BelleChasse, Louisiana) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$25,000 and suspended from association with any NASDmember in any capacity for two weeks (deemed served).Without admitting or denying the allegations, Atchleyconsented to the described sanctions and to the entry offindings that, at the request of a public customer, hedeposited $189,211.37 of the public customer’s funds intohis personal checking and securities accounts, used thefunds to purchase bearer bonds on behalf of the customer,and in doing so, falsified his member firm’s books andrecords in that he concealed the true identity of the pur-chaser of the bonds.

Michael E. Ellis (Registered Principal, Jackson,Mississippi) submitted a Letter of Acceptance, Waiverand Consent pursuant to which he was fined $35,000 andrequired to participate in a compliance conference con-

ducted by the NASD and to undergo training specificallydesigned to address his supervision of his firm’s mutualfunds sales activities, as a portion of the Firm Element ofhis firm’s Continuing Education Program. Without admit-ting or denying the allegations, Ellis consented to thedescribed sanctions and to the entry of findings that hesolicited and failed to return $41,699 to various mutualfund companies representing funds paid by the mutualfund companies in excess of the costs of sponsoring aneducational meeting. Furthermore, the NASD found thatEllis did not obtain from his member firm advance writtenapproval for a meeting in accordance with firm procedures,and retained possession of a $5,000 check received from amutual fund company that was erroneously deposited intohis personal cash management account.

Wade S. Lawson (Registered Representative, WestHollywood, California) was fined $57,500, barred fromassociation with any NASD member in any capacity, andrequired to pay $100,000 in restitution to a publiccustomer. The sanctions were based on findings thatLawson recommended and engaged in a private securitiestransaction without prior written notice to and approvalfrom his member firm. Furthermore, Lawson recommend-ed and engaged in a purchase transaction on behalf of apublic customer without having reasonable grounds forbelieving that this recommendation and the resultant trans-action were suitable for the customer on the basis of hisage, financial situation, objectives, and needs. Lawson alsoengaged in the sale of unregistered securities to a publiccustomer.

Southern Farm Bureau Fund Distributor, Inc.(Jackson, Mississippi) and William H. Risher, Jr.(Registered Principal, Brandon, Mississippi) submitteda Letter of Acceptance, Waiver and Consent pursuant towhich they were fined $50,000, jointly and severally.Without admitting or denying the allegations, the respon-dents consented to the described sanctions and to the entryof findings that the firm, acting through Risher, maintainedregistrations for 197 individuals who were not activelyengaged in the securities business of the firm. The findingsalso stated that the firm, acting through Risher, failed andneglected to exercise reasonable and proper supervisionover its registered representatives, and failed and neglectedto establish, maintain, and enforce supervisory procedures.Furthermore, the NASD determined that the firm, actingthrough Risher, failed and neglected to comply with thecontinuing education requirements of the NASD in that thefirm did not prepare a needs analysis, or prepare a trainingprogram and procedures for implementing the regulatoryor firm elements for continuing education.

November ActionsJere L. Beasley, Jr. (Registered Representative,Montgomery, Alabama) submitted a Letter ofAcceptance, Waiver and Consent pursuant to which hewas fined $8,100, suspended from association with anyNASD member in any capacity for one week, and requiredto requalify by exam as a general securities representative.Without admitting or denying the allegations, Beasleyconsented to the described sanctions and to the entry offindings that he executed unauthorized transactions in theaccounts of public customers without their knowledge orconsent.

December ActionsPhillip J. Booth (Registered Representative, FloydsKnobs, Indiana) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$200,000, barred from association with any NASD mem-ber in any capacity, and ordered to pay $40,000 in restitu-tion to a member firm. Without admitting or denying theallegations, Booth consented to the described sanctionsand to the entry of findings that he received from a publiccustomer a $40,000 check by misrepresenting to the cus-tomer that the funds were to be used to purchase an annu-ity for the customer. The NASD found that Booth failedand neglected to purchase the annuity, and instead convert-ed the funds to his own use and benefit by endorsing the

check and depositing it into his personal bank account,without the customer’s knowledge or consent.

John S. Claudino (Registered Representative,Brooklyn, New York) submitted an Offer of Settlementpursuant to which he was fined $10,000, suspended fromassociation with any NASD member in any capacity for 30days, and required to requalify by exam as a general secu-rities representative. Without admitting or denying theallegations, Claudino consented to the described sanctionsand to the entry of findings that he executed unauthorizedpurchase and sale transactions in the account of a publiccustomer without the knowledge or consent of the cus-tomer. The findings also stated that Claudino failed torespond timely to NASD requests for information.

Robert E. Staley (Registered Representative,Maumelle, Arkansas) submitted an Offer of Settlementpursuant to which he was fined $5,000, suspended fromassociation with any NASD member in any capacity forsix months, and required to requalify by exam as a generalsecurities representative. Without admitting or denying theallegations, Staley consented to the described sanctionsand to the entry of findings that he recommended andengaged in the purchase transaction of a limited partner-ship in the joint account of public customers without hav-ing reasonable grounds for believing that suchrecommendation and resultant transaction was suitable forthe customers on the basis of their financial situation,investment objectives, and needs. The findings also statedthat Staley borrowed $1,500 from a public customer know-ing that he did not have the ability to repay the loan.

District 6 - Texas

September ActionsBrice Hanson Barnes (Registered Representative,Austin, Texas) submitted a Letter of Acceptance, Waiverand Consent pursuant to which he was fined $10,000 andsuspended from association with any NASD member inany capacity for two years. Without admitting or denyingthe allegations, Barnes consented to the described sanc-tions and to the entry of findings that he participated in aprivate securities transaction and failed to provide writtennotification to his member firm describing in detail theproposed transaction and his proposed role therein, andstating whether he has received selling compensation inconnection with the transaction. The NASD also deter-mined that Barnes solicited and participated in the sale ofcommon stock and thereby engaged in activities outsidethe scope of his registration.

George Michael McWhorter (RegisteredRepresentative, College Station, Texas) submitted aLetter of Acceptance, Waiver and Consent pursuant towhich he was fined $5,000 and suspended from associationwith any NASD member in any capacity for three businessdays. Without admitting or denying the allegations,McWhorter consented to the described sanctions and to theentry of findings that he participated in a private securitiestransaction and failed to provide written notice to hismember firm describing in detail the proposed transaction,his proposed role therein, and stating whether he receivedor might receive selling compensation in connection withthe transaction.

October ActionsCharles Sung Beck (Registered Representative, ChinoHills, California) and Paul Mitchell Curtis (RegisteredRepresentative, Los Angeles, California). Beck submit-ted an Offer of Settlement pursuant to which he was fined$5,000 and suspended from association with any NASDmember in any capacity for eight months. In a separatedecision, Curtis was fined $50,000 and barred from associ-ation with any NASD member in any capacity. Withoutadmitting or denying the allegations, Beck consented tothe described sanctions and to the entry of findings thatBeck and Curtis participated in private securities transac-tions and failed to provide prior written notice to their

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member firms describing in detail the proposed transac-tions and their proposed role therein, and stating whetherthey had received or may receive selling compensation inconnection with the transactions. Curtis also failed torespond to NASD requests for information.

Robert Wayne Vallair (Registered Principal, Houston,Texas) was fined $5,000, suspended from association withany NASD member in any capacity for five business days,and required to requalify by exam. The sanctions werebased on findings that Vallair engaged in outside businessactivities without notifying his member firm.

Fusung Peter Wu (Registered Principal, Plano, Texas)submitted an Offer of Settlement pursuant to which he wasfined $2,000, jointly and severally, with a member firm,suspended from association with any NASD member inany capacity for 60 days, required to requalify by examprior to associations with any NASD member in a princi-pal capacity, and required to file advertisements with theNASD at least 10 days prior to use for two years. Withoutadmitting or denying the allegations, Wu consented to thedescribed sanctions and to the entry of findings that amember firm, acting through Wu, failed to file advertise-ments with the NASD at least 10 days prior to use. Thefindings also stated that a member firm, acting throughWu, published an advertisement reflecting recommenda-tions relating to specific securities that omitted materialfacts and/or qualifications, causing the advertising to bemisleading. Furthermore, the NASD found that a memberfirm, acting through Wu, published and/or caused to bepublished, advertisements that reflected recommendationsrelating to specific securities and corporate equities with-out providing, or offering to furnish upon request, avail-able information supporting the recommendation andfailed to reflect the price at the time the recommendationwas made.

November ActionsHarold Lee Deavours (Registered Representative,Kingwood, Texas) submitted an Offer of Settlement pur-suant to which he was fined $165,000 and barred fromassociation with any NASD member in any capacity.Without admitting or denying the allegations, Deavoursconsented to the described sanctions and to the entry offindings that he engaged in outside business activities andfailed to provide prompt written notice to his member firmof such activities. The findings also stated that Deavoursmade false, fictitious, and misleading representations to hismember firm and failed to respond to NASD requests forinformation.

Dennis John DeYoung (Registered Principal,Northridge, California) submitted an Offer of Settlementpursuant to which he was fined $8,500, suspended fromassociation with any NASD member in any capacity for 31days, ordered to disgorge $22,815, and required to requali-fy by exam. Without admitting or denying the allegations,DeYoung consented to the described sanctions and to theentry of findings that he participated in private securitiestransactions and outside business activities while failing toprovide prior written notice to his member firm of his par-ticipation in such activities. The findings also stated thatDeYoung made false, fictitious, and misleading represen-tations to his member firm.

Dominion Capital Corporation (Dallas, Texas) andDouglas Woodrow Powell (Registered Principal,Dallas, Texas) submitted a Letter of Acceptance, Waiverand Consent pursuant to which they were fined $35,000,jointly and severally, and Powell was suspended fromassociation with any NASD member in any principalcapacity for five business days. Without admitting or deny-ing the allegations, the respondents consented to thedescribed sanctions and to the entry of findings that thefirm, acting through Powell, failed to comply with SECRules 17a-3 and 17a-4 in that its books and records wereeither inaccurate, incomplete, or not maintained. The find-ings also stated that the firm, acting through Powell, failedto maintain and enforce adequate written supervisory pro-cedures and failed to maintain adequate procedures regard-ing its compliance with the Securities Industry Continuing

Education Program. The findings also stated that the firm,acting through Powell, failed to submit quarterly statisticaldata regarding customer complaints, effected a series oftransactions in equity securities, and failed to comply withSEC Rule 10b-10 in confirming each transaction to itscustomers in that the firm failed to disclose over $12,500in mark-ups and mark-downs.

Jonathan Matthew Lorenz (Registered Representative,Lubbock, Texas) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was barred fromassociation with any NASD member in any capacity.Without admitting or denying the allegations, Lorenz con-sented to the described sanction and to the entry of findingsthat he signed the names of public customers on insuranceand insurance-related forms, submitted the forms to hismember firm, and represented that the signatures on theforms were genuine when, in fact, they were not.

Steven Wayne Martin (Registered Representative,Whitehouse, Texas) was fined $22,000, suspended fromassociation with any NASD member in any capacity for 18months, and ordered to requalify by exam. The sanctionswere based on findings that Martin failed to timely respondto NASD requests for information. Martin also submittedto his member firm an annual compliance checklist formthat contained false and misleading responses to questions.

Bryan James O’Leary (Registered Principal, Dallas,Texas) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $8,500 and sus-pended from association with any NASD member in anycapacity for 10 business days. Without admitting or deny-ing the allegations, O’Leary consented to the describedsanctions and to the entry of findings that, while serving asa general securities principal, he failed to supervise theactivities of an individual adequately in that he failed toensure that the individual was properly registered with theNASD prior to conducting a securities business.

The Exchange, Inc. (Austin, Texas) and Christian PaulGarces (Registered Representative, Austin, Texas) sub-mitted a Letter of Acceptance, Waiver and Consent pur-suant to which they were fined $17,500, jointly andseverally. Without admitting or denying the allegations,the respondents consented to the described sanction and tothe entry of findings that the firm, acting through Garces,conducted a securities business while failing to maintainits minimum required net capital. The findings also statedthat the firm, acting through Garces, failed to register fiveemployees as representatives and failed to require theseindividuals to pass the required qualifications exams whileallowing them to conduct activities requiring registration.Furthermore, the NASD determined that the firm, actingthrough Garces, failed to maintain the physical security ofSmall Order Execution SystemSM (SOESSM) equipment toprevent the unauthorized entry of information into SOES.The NASD also found that the firm failed to identify ninetransactions input to the ACT as short sales.

Jerry Jewel Waller (Registered Representative,Pasadena, Texas) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$5,000 and barred from association with any NASD mem-ber in any capacity. Without admitting or denying the alle-gations, Waller consented to the described sanctions and tothe entry of findings that he exercised control over travel-er’s checks that were owned by an affiliate of his memberfirm and made unauthorized use of them.

Richard Wayne Wells, Sr. (Registered Representative,Rockwall, Texas) submitted an Offer of Settlement pur-suant to which he was fined $20,000 and barred from asso-ciation with any NASD member in any capacity. Withoutadmitting or denying the allegations, Wells consented tothe described sanctions and to the entry of findings that hefailed to respond to NASD requests for information.

December ActionsJames Michael Russell (Registered Representative, SanAntonio, Texas) was fined $25,000 and barred from asso-ciation with any NASD member in any capacity. The sanc-

tions were based on findings that Russell engaged in out-side business activities even though he had not providedprompt written notice of such to his member firm. Russellalso failed to respond to NASD requests to appear for anon-the-record interview.

District 7 - Florida, Georgia, North Carolina, SouthCarolina, Puerto Rico and the Canal Zone, and theVirgin Islands

September ActionsLitwin Securities, Inc. (Miami Beach, Florida) andHarold A. Litwin (Registered Principal, Miami Beach,Florida) were fined $25,000, jointly and severally, andLitwin was barred from association with any NASD mem-ber as a financial and operations principal. The SECaffirmed the sanctions following appeal of a March 1996NBCC decision. The sanctions were based on findings thatthe firm, acting through Litwin, filed inaccurate FOCUSPart I and IIA reports and submitted false and misleadingfinancial documents to the NASD. The firm, actingthrough Litwin, also failed to maintain current and accu-rate books and records and conducted a securities businesswhile failing to maintain its minimum required net capital.Furthermore, the firm, acting through Litwin, failed to givenotice of the capital deficiency to the SEC and the NASD.

October ActionsMark A. Bavosa (Registered Representative, BoyntonBeach, Florida) submitted an Offer of Settlement pur-suant to which he was fined $25,000 and barred from asso-ciation with any NASD member in any capacity. Withoutadmitting or denying the allegations, Bavosa consented tothe described sanctions and to the entry of findings that hesigned a customer’s name to disbursement request formsand a disbursement check relating to an insurance policyowned by the customer without the customer’s knowledgeor authorization. The findings also stated that Bavosafailed to respond to an NASD request for information.

Jeffrey D. Berkoff (Registered Representative, Jupiter,Florida) submitted an Offer of Settlement pursuant towhich he was suspended from association with any NASDmember in any capacity for 30 days. Without admitting ordenying the allegations, Berkoff consented to the describedsanction and to the entry of findings that he participated inoutside business activities and failed to notify his memberfirm.

Robert W. Campbell, Jr. (Registered Representative,Tucker, Georgia) was fined $5,000, suspended from asso-ciation with any NASD member in any capacity for sixmonths, and ordered to requalify by exam as an investmentcompany and variable contracts products representative.The sanctions were based on findings that Campbell signedthe name of a public customer to an investor disclosureform without the customer’s knowledge or authorization.

Joseph F. DeSanto (Registered Principal, HillsboroBeach, Florida) and Robert B. DiMarco, Jr.(Registered Principal, Boca Raton, Florida) submittedan Offer of Settlement pursuant to which they were fined$60,000, jointly and severally, suspended from associationwith any NASD member in any principal or supervisorycapacity for three years, and required to requalify by examas general securities sales representatives. In addition,DiMarco was suspended from association with any NASDmember in any capacity for one year and DeSanto wassuspended from association with any NASD member inany capacity for six months. Without admitting or denyingthe allegations, the respondents consented to the describedsanctions and to the entry of findings that a member firm,acting through DiMarco and DeSanto, carried an inventoryposition, the value of which was greater than 50 percent ofthe firm’s previous month’s excess net capital by amountsranging from approximately $1.5 million to $10.8 million,in violation of the firm’s restrictive agreement.

Robert E. Hines (Registered Representative, Brooklyn,New York) was fined $20,000 and barred from association

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with any NASD member in any capacity. The sanctionswere based on findings that Hines failed to appear andprovide testimony and to respond to an NASD request forinformation.

Charles M. Hogan (Registered Representative,Winston-Salem, North Carolina) submitted a Letter ofAcceptance, Waiver and Consent pursuant to which hewas suspended from association with any NASD memberin any capacity for five business days and required to dis-gorge $187.50 to the NASD. Without admitting or denyingthe allegations, Hogan consented to the described sanc-tions and to the entry of findings that he purchased sharesof stock that traded at a premium in the immediate after-market in violation of the Board of Governors’ Free-Riding and Withholding Interpretation. Furthermore, theNASD found that Hogan failed to notify his current mem-ber firm of the existence of an account with another mem-ber firm and failed to advise his former member firm thathe had become associated with his current member firm.

Timothy P. Kelly (Registered Representative,Longwood, Florida) submitted an Offer of Settlementpursuant to which he was fined $7,000, suspended fromassociation with any NASD member in any capacity for 30days, and further suspended until he requalifies by exam.Without admitting or denying the allegations, Kelly con-sented to the described sanctions and to the entry of find-ings that he functioned as a general securitiesrepresentative, and made at least two sales of investmentcompany securities to public customers when he was notregistered with the NASD. The findings also stated thatKelly failed to disclose a four percent sales charge (front-end load) on the purchase of investment company securi-ties to customers.

Albert E. Lee (Registered Representative, Decatur,Georgia) was fined $25,000, barred from association withany NASD member in any capacity, and ordered to pay$706.91 in restitution. The sanctions were based on find-ings that Lee received cash payments totaling $706.91from public customers intended as insurance policy premi-um payments, failed to remit the payments to his memberfirm, and converted the funds to his own use and benefit.Lee also failed to respond to an NASD request for infor-mation.

Harold A. Litwin (Registered Principal, Miami Beach,Florida) submitted an Offer of Settlement pursuant towhich he was fined $7,500, suspended from associationwith any NASD member in any principal or supervisorycapacity for two years, and barred from association withany NASD member as a financial and operations principal.In addition, Litwin was fined $5,000, jointly and severallywith a member firm. Without admitting or denying theallegations, Litwin consented to the described sanctionsand to the entry of findings that a member firm, actingthrough Litwin, failed to pay an arbitration award and con-ducted a securities business while failing to maintain itsminimum required net capital. The findings also stated thata member firm, acting through Litwin, failed to maintaincomplete, current, and accurate books and records, andfiled false and inaccurate FOCUS Part I and IIA reports.Furthermore, the NASD determined that Litwin functionedas a financial and operations principal at a member firmwithout being registered as such. The NASD also foundthat a member firm, acting through Litwin, effected cus-tomer sales of municipal bonds without having a registeredmunicipal securities principal as required by MSRB RulesG-2 and G-3 and in violation of the firm’s restrictionagreement with the NASD.

Richard S. Pearl (Registered Principal, PembrokePines, Florida) submitted an Offer of Settlement pursuantto which he was fined $15,000 and suspended from associ-ation with any NASD member in any capacity for twoyears. Without admitting or denying the allegations, Pearlconsented to the described sanctions and to the entry offindings that he recommended to a public customer acourse of trading including short-term stock trading, thepurchase and sale of listed options, margin trading, andshort selling, without having a reasonable basis for believ-ing that such trading was suitable for the customer.

Alan E. Pomeranz (Registered Representative, BocaRaton, Florida) submitted an Offer of Settlement pur-suant to which he was fined $50,000, required to disgorge$302,748 in commissions to customers, and barred fromassociation with any NASD member in any capacity.Without admitting or denying the allegations, Pomeranzconsented to the described sanctions and to the entry offindings that he participated in private securities transac-tions without providing prior written notice to or obtainingapproval from his member firm regarding the transactions.

Bobby L. Porter (Registered Representative, PalmHarbor, Florida) was fined $20,000 and barred fromassociation with any NASD member in any capacity. Thesanctions were based on findings that Porter failed torespond to NASD requests for information.

Robert F. Scholl, Jr. (Registered Representative,Atlanta, Georgia) was fined $20,000 and barred fromassociation with any NASD member in any capacity. Thesanctions were based on findings that Scholl failed torespond to NASD requests for information.

November ActionsScott I. Brown (Registered Representative, Hallandale,Florida) was fined $7,500, suspended from associationwith any NASD member in any capacity for 10 businessdays and thereafter until he qualifies by exam as a generalsecurities representative, and ordered to disgorge$1,498.62 to public customers. The sanctions were basedon findings that Brown executed purchase and sale trans-actions in the securities accounts of public customers with-out their knowledge or consent.

Euro-Atlantic Securities Inc. (Boca Raton, Florida),David P. Melillo (Registered Principal, Pinellas Park,Florida), Robert E. Hines (Registered Representative,Brooklyn, New York), Charles M. Francis (RegisteredRepresentative, Staten Island, New York), and Peter J.Matera, Jr. (Registered Representative, Brooklyn, NewYork). Melillo submitted an Offer of Settlement pursuantto which he was fined $100,000 and barred from associa-tion with any NASD member in any capacity, with theright to reapply after two years only as a registered repre-sentative. In a separate decision, the firm was fined$200,000, required to disgorge $1,762,409 to itscustomers, and expelled from membership in the NASD.Francis was fined $5,000, suspended from association withany NASD member in any capacity for 30 days, requiredto pay $2,017.55 in restitution to customers, and requiredto requalify by exam as a general securities representative.Matera was fined $5,000, suspended from association withany NASD member in any capacity for 30 days, requiredto pay $5,437.50 in restitution to customers, and requiredto requalify by exam as a general securities representative.Hines was fined $50,000, barred from association with anyNASD member in any capacity, and required to pay$39,984.50 in restitution to customers.

Without admitting or denying the allegations, Melillo consented to the described sanctions and to the entry offindings that the firm, acting through Melillo, used manip-ulative, deceptive or other fraudulent devices in connectionwith the sale of warrants, and dominated and controlledboth the wholesale and retail markets for a security suchthat there was no independent, competitive market in thesecurity.

The findings also stated that the firm, acting throughMelillo, charged fraudulently excessive mark-ups to retailcustomers in principal transactions, with mark-ups rangingfrom 5.26 to 63.16 percent over the prevailing marketprice. Francis, Matera, and Hines engaged in unfair pricingregarding the sale of warrants to public customers in thatthe gross commissions they earned on the sales of warrantsranged from 15 to 32 percent of their customers’ totalinvestment and they failed to question the fairness of theprices being charged to the firm’s retail customers. TheNASD also determined that Melillo failed to supervise hismember firm’s salesman adequately.

December ActionsPeter M. Delseni (Registered Representative, Brooklyn,New York) was fined $50,000, barred from associationwith any NASD member in any capacity, and required topay $9,626.05 in restitution to his customers. The sanc-tions were based on findings that Delseni received com-missions on sales of securities to retail customers that wereexcessive and unfair.

District 8 - Illinois, Indiana, Michigan, part of upstateNew York (the counties of Livingston, Monroe, andSteuben, and the remainder of the state west of suchcounties), Ohio, and Wisconsin

September ActionsDouglas E. Dawe (Registered Representative, Lansing,Michigan) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $15,000 andbarred from association with any NASD member in anycapacity. Without admitting or denying the allegations,Dawe consented to the described sanctions and to the entryof findings that he obtained a letter from a public customerinstructing him to sell shares of one mutual fund in thecustomer’s account in exchange for another mutual fund.The NASD determined that Dawe prepared a letter andsigned the customer’s name to it without the customer’sknowledge or consent. The findings also stated that Dawesigned and submitted a letter on behalf of public customersto a mutual fund company with instructions to liquidate thecustomers’ mutual fund shares and mail the redemptioncheck to an address he maintained without the customers’knowledge or consent, and effected the purchase of sharesof other mutual funds for the customers’ account.Furthermore, the NASD found that Dawe submitted to amutual fund company, on behalf of a public customer, aletter he wrote containing instructions to liquidate the cus-tomer’s mutual fund shares and forward the redemptioncheck to the customer without the customer’s knowledgeor consent.

Paul Thomas Fiorini (Registered Principal, LosAngeles, California) was fined $150,000, subject to offsetby payment of restitution of not more than $100,000, andbarred from association with any NASD member in anycapacity. The sanctions were based on findings that Fiorinisold for his account at his member firm shares of stock hedid not own and failed to deliver the shares before settle-ment date. Fiorini also purchased for his account shares ofstock totaling $112,656.25 and failed to pay for the stock.

Matthew Russell Hinton (Registered Representative,Prescott, Wisconsin) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$2,500 and suspended from association with any NASDmember in any capacity for one year. Without admitting ordenying the allegations, Hinton consented to the describedsanctions and to the entry of findings that he completedand signed an inaccurate and incomplete Form U-4.

Robert A. McDowell (Registered Representative,Elkhart, Indiana) submitted an Offer of Settlement pur-suant to which he was fined $385,000, barred from associ-ation with any NASD member in any capacity, andordered to pay $77,546.62 in restitution. Without admittingor denying the allegations, McDowell consented to thedescribed sanctions and to the entry of findings that hereceived checks totaling $77,000 from public customersand his member firm for the purchase of a variable annuityand as a refund. The NASD found that McDowell insteadused the funds for some purpose other than for the benefitof the customers.

Thomas J. Stiener (Registered Representative,Commerce, Michigan) was fined $20,000 and barredfrom association with any NASD member in any capacity.The sanctions were based on findings that Stiener failed torespond to NASD requests for information.

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Michael E. Verity (Registered Representative, Eleva,Wisconsin) submitted an Offer of Settlement pursuant towhich he was fined $40,000 and barred from associationwith any NASD member in any capacity. Without admit-ting or denying the allegations, Verity consented to thedescribed sanctions and to the entry of findings that heobtained a $4,000 check from a public customer intendedfor the purchase of mutual funds and, instead, used thefunds for some purpose other than for the benefit of thecustomer. The findings also stated that Verity failed torespond to NASD requests for information.

October ActionsFirst Analysis Securities Corporation (Chicago,Illinois) and Janet Irene Lloyd (Registered Principal,Chicago, Illinois) submitted a Letter of Acceptance,Waiver and Consent pursuant to which they were fined$15,000, jointly and severally. Without admitting or deny-ing the allegations, the respondents consented to thedescribed sanctions and to the entry of findings that thefirm, acting through Lloyd, allowed an individual to beinvolved in the banking and securities business of the firmdespite the fact the individual was not registered with theNASD and had failed to complete the regulatory elementof the NASD’s Continuing Education Program. The find-ings also stated that the firm, acting through Lloyd, failedto establish and maintain adequate written supervisoryprocedures with respect to the NASD’s ContinuingEducation Program.

John Nicholas Giartonia, III (RegisteredRepresentative, Aurora, Illinois) submitted a Letter ofAcceptance, Waiver and Consent pursuant to which hewas fined $210,000 and barred from association with anyNASD member in any capacity. Without admitting ordenying the allegations, Giartonia consented to thedescribed sanctions and to the entry of findings that hereceived from public customers checks totaling $22,000intended for the purchase of a life insurance policy and forinvestment purposes. The NASD found that Giartoniacashed the checks, deposited the funds in an account inwhich he had a beneficial interest, and used the funds forsome purpose other than for the benefit of the customers.

Patricia A. Means (Registered Representative, Justice,Illinois) submitted an Offer of Settlement pursuant towhich she was fined $10,000, barred from association withany NASD member in any capacity, and required to pay$645 in restitution. Without admitting or denying the alle-gations, Means consented to the described sanctions and tothe entry of findings that she submitted a false life insur-ance application and a $300 money order to an affiliate ofher member firm, thereby causing the firm to pay her $945in commissions to which she was not entitled.

Lawrence M. Mosko (Registered Representative,Naperville, Illinois) was fined $22,500 and barred fromassociation with any NASD member in any capacity. Thesanctions were based on findings that Mosko prepared anddelivered to public customers sales literature withoutobtaining prior approval by a registered principal of hismember firms. Mosko also failed to respond to NASDrequests for information.

Philip A. Palarchio (Registered Representative,Haslett, Michigan) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was barred fromassociation with any NASD member in any capacity.Without admitting or denying the allegations, Palarchioconsented to the described sanction and to the entry offindings that he requested that his member firm issuechecks totaling $74,098.23 to public customers who main-tained life insurance policies with his member firm;obtained, endorsed, and deposited the checks in his person-al bank account; and used the funds for some purposeother than the benefit of the customers, without the cus-tomers’ knowledge or consent.

Michael Shane Rummel (Registered Representative,Evansville, Indiana) submitted an Offer of Settlementpursuant to which he was barred from association with anyNASD member in any capacity. Without admitting or

denying the allegations, Rummel consented to thedescribed sanction and to the entry of findings that he com-pleted and submitted to his member firm a request for thewithdrawal of $7,500 from a public customer’s moneymarket fund without the customer’s knowledge, consent orauthorization and in the absence of written or oral autho-rization to Rummel to exercise discretion in the account.Furthermore, the NASD found that Rummel caused a cus-tomer to issue a $7,500 check to him by claiming that aprevious withdrawal check the customer received wasissued in error, and without the customer’s knowledge orconsent, negotiated the check and used the funds for somepurpose other than for the benefit of the customer.

James Kenneth Smith (Registered Representative,Ypsilanti, Michigan) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$5,000, barred from association with any NASD memberin any capacity, and required to pay $627.97 in restitutionto a member firm. Without admitting or denying the alle-gations, Smith consented to the described sanctions and tothe entry of findings that he requested a member firm towithdraw and issue a check in the amount of $627.97 frompublic customers’ securities account, obtained andendorsed the check, and deposited it in his bank accountwithout the knowledge or consent of the customers.

Carl Julius Winkler, III (Registered Representative,Carmel, Indiana) was fined $5,745,395.50, barred fromassociation with any NASD member in any capacity, andordered to pay $1,145,079.10 in restitution to the appropri-ate parties. The sanctions were based on findings thatWinkler obtained $1,160,079.10 by requesting from hismember firm withdrawals from annuity accounts andinsurance policies of public customers and soliciting pre-mium payments and, without the knowledge or consent ofthe customers, deposited the funds into a bank account heowned and controlled, and used the money for some pur-pose other than for the benefit of the customers. Winkleralso failed to respond to NASD requests for information.

November ActionsRalph A. Bafo (Registered Representative, Tonawanda,New York) was fined $20,000 and barred from associationwith any NASD member in any capacity. The sanctionswere based on findings that Bafo failed to respond toNASD requests for information.

Bafo has appealed this action to the NBCC and the sanc-tions are not in effect pending consideration of the appeal.

Daniel C. Boss (Registered Representative, Mendon,New York) was fined $215,000, barred from associationwith any NASD member in any capacity, and required topay $39,100 in restitution to a customer. The sanctionswere based on findings that Boss received $40,000 from apublic customer for the purchase of unspecified invest-ments he recommended and, without the customer’sknowledge or consent, did not use the funds for the intend-ed purpose, but for some purpose other than for the benefitof the customers. Boss also failed to respond to NASDrequests for information.

Boss has appealed this action to the NBCC and the sanc-tions are not in effect pending consideration of the appeal.

December ActionsMichael Ray Anderson (Registered Representative,Ambia, Indiana) submitted an Offer of Settlement pur-suant to which he was fined $226,000, barred from associ-ation with any NASD member in any capacity, andrequired to pay $9,046 in restitution. Without admitting ordenying the allegations, Anderson consented to thedescribed sanctions and to the entry of findings that, inconnection with the purchase and sale of securities in theform of variable annuity life insurance products, hereceived $124,400 from public customers. The NASDdetermined that contrary to the customers’ instructions,and without their knowledge or consent, Andersonretained $44,440 for some purpose other than the benefit ofthe customers. The findings also stated that Anderson sub-

mitted to his member firm five disbursement request formsthat caused a total of $849 to be disbursed from insurancepolicies owned by a public customer and used the funds tomake premium payments on a variable annuity life insur-ance product that the customer had requested to be can-celed, all without the customer’s knowledge or consent.

Gerald Arthur Christensen (Registered Representative,Sterling Heights, Michigan) submitted an Offer ofSettlement pursuant to which he was fined $5,000 andbarred from association with any NASD member in anycapacity. Without admitting or denying the allegations,Christensen consented to the described sanctions and to theentry of findings that he participated in the offer and saleof securities to public customers on a private basis and inconnection therewith, failed and neglected to provide writ-ten notice to, and receive written authorization from, hismember firm to engage in such activities.

Herbert G. Frey (Registered Principal, Cincinnati,Ohio) was suspended from association with any NASDmember in any capacity for 180 days. The SEC affirmedthe sanction following appeal of a March 1997 NBCCdecision. The sanctions were based on findings that Freyfailed to pay an arbitration award.

Terry W. Hamilton (Registered Representative,Milwaukee, Wisconsin) submitted an Offer of Settlementpursuant to which he was fined $25,000 and barred fromassociation with any NASD member in any capacity.Without admitting or denying the allegations, Hamiltonconsented to the described sanctions and to the entry offindings that he obtained $111.48 from a public customerwith instructions to use the funds to pay for a life insur-ance policy. The NASD determined that Hamilton failed tofollow the customer’s instructions and used the funds forsome purpose other than for the benefit of the customer.The findings also stated that Hamilton failed to respond toNASD requests for information.

Steven Herbert Johansen (Registered Representative,Bolingbrook, Illinois) was fined $100,000 and barredfrom association with any NASD member in any capacity.The NBCC affirmed the sanctions following appeal of aChicago DBCC decision. The sanctions were based onfindings that Johansen fraudulently interpositioned collat-eralized mortgage obligations to evade inventory limits setby his member firm and to generate greater trading profits.

Johansen has appealed this action to the SEC and the sanc-tions, other than the bar, are not in effect pending consider-ation of the appeal.

Daniel Gerard Mullen (Registered Representative,Chicago, Illinois) submitted an Offer of Settlement pur-suant to which he was fined $6,000 and suspended fromassociation with any NASD member in any capacity for 10business days. Without admitting or denying the allega-tions, Mullen consented to the described sanctions and tothe entry of findings that he purchased and sold securitiesfor the account of a public customer without thecustomer’s knowledge or consent and in the absence ofwritten or oral authorization from the customer to exercisediscretion in the account.

Jeffrey A. Neal (Registered Representative, Gallipolis,Ohio) was fined $70,000, barred from association with anyNASD member in any capacity, and ordered to pay$10,049.67 in restitution to a member firm. The sanctionswere based on findings that Neal submitted disbursementrequest forms purportedly signed by public customers,causing the firm to issue checks totaling $10,049.67,payable to the customers. Neal did not provide thesechecks or the checks’ proceeds to the customers andretained the funds for his own use and benefit, without thecustomers’ knowledge, consent, or authorization. Neal alsofailed to respond to NASD requests for information.

Carlton D. Oakley (Registered Representative, Buffalo,New York) was fined $50,000, barred from associationwith any NASD member in any capacity, and ordered topay $5,969.46 in restitution to a member firm. The sanc-tions were based on findings that Oakley received a

43


$5,969.46 check from a public customer intended for thepurchase of securities and, without the customer’s knowl-edge or consent, used the funds for some purpose otherthan for the benefit of the customer. Oakley also failed torespond to NASD requests for information.

William H. Scherrer (Registered Representative,Burlington, Wisconsin) submitted an Offer of Settlementpursuant to which he was fined $5,000 and suspendedfrom association with any NASD member in any capacityfor 10 business days. Without admitting or denying theallegations, Scherrer consented to the described sanctionsand to the entry of findings that he signed the names ofpublic customers to life insurance takeover request formswithout the knowledge or consent of the customers.

Bruce M. Vitrano (Registered Representative, Blasdell,New York) was fined $30,000, barred from associationwith any NASD member in any capacity, and required topay $1,979.56 in restitution to a member firm. The sanc-tions were based on findings that Vitrano received from apublic customer $1,979.56 to be used to fund a variablelife insurance policy. Vitrano did not apply any of thefunds as intended by the customer and used the funds forhis own use and benefit. Vitrano also failed to respond toNASD requests for information.

Westhagen & Westhagen, Inc. (Ripon, Wisconsin) andEric P. Westhagen (Registered Principal, Ripon,Wisconsin) were fined $10,000, jointly and severally, andWesthagen was barred from association with any NASDmember in any principal or supervisory capacity. Thesanctions were based on findings that the firm, actingthrough Westhagen, failed to promptly amend and file withthe NASD a Form BD to reflect a delinquent tax warrant,failed to maintain a general ledger, checkbook, bank state-ments, canceled checks, bank reconciliations, and copiesof the firm’s Form BD. In addition, the firm, actingthrough Westhagen, prepared inaccurate trail balances andnet capital computations, and filed inaccurate FOCUS PartI and IIA reports with the NASD. The firm, acting throughWesthagen, also failed to fully respond to NASD requestsfor information.

The firm and Westhagen have appealed this action to theNBCC and the sanctions are not in effect pending consid-eration of the appeal.

District 9 - Delaware, District of Columbia, Maryland,southern New Jersey (the counties of Atlantic,Burlington, Camden, Cape May, Cumberland,Gloucester, Mercer, Ocean, and Salem) Pennsylvania,Virginia, and West Virginia

September ActionsE. C. Capital, Ltd. (Roslyn Heights, New York) andGregory Small (Registered Principal, New York, NewYork) submitted a Letter of Acceptance, Waiver andConsent pursuant to which they were fined $7,500, jointlyand severally. The firm is also required to pay $4,744.64 inrestitution to customers. Without admitting or denying theallegations, the respondents consented to the describedsanctions and to the entry of findings that the firm, actingthrough Small, effected as principal the sales of stock tocustomers that were not fair and reasonable taking intoconsideration all relevant circumstances in that themarkups on the transactions exceeded five percent. Thefindings also stated that the firm, acting through Small,failed to report transactions timely or otherwise properlyreport transactions in accordance with the transactionreporting requirements of The Nasdaq Stock Market con-tained in Rules 4630, et seq.

Janney Montgomery Scott Inc. (Philadelphia,Pennsylvania) submitted an Offer of Settlement pursuantto which the firm was fined $35,000 (deemed satisfied inconnection with and pursuant to its settlement of proceed-ings instituted by the Pennsylvania Securities Commission)and undertakes that the program formulated by an indepen-dent consultant pursuant to paragraph 5(c) of the Orderentered in that proceeding will be implemented as to branch

office managers of branches outside of Pennsylvania as wellas managers of branch offices located within Pennsylvania,and all policies and procedures adopted and implementedpursuant to the Order in the firm’s branch offices locatedwithin Pennsylvania will also be adopted and implementedin its branch office outside of Pennsylvania. Without admit-ting or denying the allegations, the firm consented to thedescribed sanctions and to the entry of findings that it failedto enforce various supervisory operations and/or other pro-cedures, rules, and policies the firm had established andimplemented, including procedures, rules, and policies relat-ing to the issuance and/or delivery of checks to customersdrawn against their accounts. The findings also stated thatthe firm failed to reasonably and properly supervise a regis-tered representative.

Robert W. Knorr (Registered Representative,Northumberland, Pennsylvania) was fined $20,000 andbarred from association with any NASD member in anycapacity. The sanctions were based on findings that Knorrfailed to respond to NASD requests for information.

David Terpoilli (Registered Representative,Norristown, Pennsylvania) was fined $20,000 and barredfrom association with any NASD member in any capacity.The sanctions were based on findings that Terpoilli failedto respond to NASD requests for information.

October ActionsGlenn E. Backus (Registered Representative,Alexandria, Virginia) submitted an Offer of Settlementpursuant to which he was fined $100,000 and barred fromassociation with any NASD member in any capacity.Without admitting or denying the allegations, Backus con-sented to the described sanctions and to the entry of find-ings that he recommended purchase and sales transactionsto public customers without having reasonable grounds forbelieving such recommendations were suitable for thecustomers taking into consideration their other securityholdings, financial situations, and needs and in view of thefrequency and nature of the transactions and Backus’improper short selling and excessive use of margin in thecustomers’ accounts. The findings also stated that Backusexecuted unauthorized trades in a customer’s accounts andimproperly exercised discretion over customer accountswithout their prior authorization. Furthermore, the NASDfound that Backus failed to disclose to a customer the risksassociated with trading on margin and short selling, andimproperly misrepresented to the customer that the cus-tomer’s monies were invested in municipal bonds whenthey were not.

Daniel Beimel (Registered Principal, New Kensington,Pennsylvania) submitted an Offer of Settlement pursuantto which he was fined $100,000 and barred from associa-tion with any NASD member in any capacity. Withoutadmitting or denying the allegations, Beimel consented tothe described sanctions and to the entry of findings that, inconduct toward public customers, he disregarded his dutyof fair dealing with customers and disregarded his duty toresearch securities recommended to customers. The NASDalso found that Beimel misled the customers by makingmaterial misrepresentations, including priced predictions,and omitted material negative information during the offer,purchase, and sale of securities. Furthermore, the findingsstated that Beimel effected transactions in securities forcustomers’ accounts without their prior authorization orconsent.

R. Scott Bennett (Registered Representative,Richmond, Virginia) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$20,000 and barred from association with any NASDmember in any capacity. Without admitting or denying theallegations, Bennett consented to the described sanctionsand to the entry of findings that he failed to respond toNASD requests for information.

Peter Casali (Registered Representative, Bronx, NewYork) was fined $30,000, barred from association withany NASD member in any capacity, and required to pay

$3,882.81 plus interest in restitution to a customer. Thesanctions were based on findings that Casali received a$4,400 check from a public customer intended as an insur-ance policy payment, deposited the check in a personalaccount, made an initial insurance payment of $517.19,and converted the remaining $3,882.81 for his own useand benefit. Casali also failed to respond to NASDrequests for information.

Chesapeake Securities Research Corporation (Towson,Maryland) and Thomas T. Taylor (RegisteredPrincipal, Towson, Maryland) submitted a Letter ofAcceptance, Waiver and Consent pursuant to which theywere fined $10,000, jointly and severally. Without admit-ting or denying the allegations, the respondents consentedto the described sanction and to the entry of findings thatthe firm, acting through Taylor, conducted a securitiesbusiness while failing to maintain its minimum requirednet capital. The findings also stated that the firm, actingthrough Taylor, conducted offerings of limited partnershipinterests, failed to return customer funds when the terms ofthe contingency were not met, and extended the termina-tion date and lowered the offering contingency when therewere no current offering documents or documented sub-scriber approval for a continuation of the offering.Furthermore, the NASD found that the firm, actingthrough Taylor, failed to obtain subscription agreementsfrom subscribers and failed to obtain signed copies ofamendments to the offering from investors. Moreover, theNASD determined that the firm, acting through Taylor,failed to maintain a checks received and delivered blotter.

Harold Davlin (Registered Representative,Washington, D.C.) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$70,000 and barred from association with any NASDmember in any capacity. Without admitting or denying theallegations, Davlin consented to the described sanctionsand to the entry of findings that he provided general sub-scriber information to other persons, which those personssubsequently used improperly to participate in a conver-sion of the mutual shares of a savings bank to the commonstock of a holding company. The NASD found that thesepersons improperly executed stock order forms in thenames of the actual depositors, participated in the conver-sion, and had the opportunity to profit when the trading ofthe common stock opened for secondary trading. TheNASD determined that these persons provided two checksto Davlin totaling $785.34, issued in the names of twobank depositors whose names were signed without theirauthorization, and that Davlin deposited the checks into hisbank account for his own use and benefit. The findingsalso stated that Davlin failed to respond to an NASDrequest to appear for an on-the-record interview.

James W. DiBella, Jr. (Registered Representative,Marlton, New Jersey) submitted an Offer of Settlementpursuant to which he was fined $10,000 and suspendedfrom association with any NASD member in any capacityfor 30 days. Without admitting or denying the allegations,DiBella consented to the described sanctions and to theentry of findings that he recommended and effected thepurchase of securities in the account of a public customerwithout having reasonable grounds to believe the recom-mendations were suitable for the customer. The findingsalso stated that, in inducing and effecting purchases,DiBella engaged in deceptive and/or fraudulent devices orpractices, made false and misleading statements of materi-al facts, and/or failed to disclose material facts about thestock. Furthermore, the NASD determined that DiBellaeffected unauthorized transactions in a customer’s account.

DiBella’s suspension began September 15, 1997 and con-cludes October 14, 1997.

Michael R. Euripides (Registered Representative,Virginia Beach, Virginia) was fined $5,000, required topay $15,488.92 plus interest in restitution, suspended fromassociation with any NASD member in any capacity for 60days, and required to requalify by exam as a general secu-rities representative. The NBCC affirmed the sanctionsfollowing appeal of a Washington DBCC decision. Thesanctions were based on findings that Euripides made

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unsuitable recommendations to a public customer regard-ing the purchase of stock, and made misrepresentationsand omissions of material facts in the sale of securities tothe customer. Euripides also executed unauthorized trans-actions in the account of a public customer.

Hubert L. Ford (Registered Representative,Wilmington, Delaware) was fined $20,000 and barredfrom association with any NASD member in any capacity.The sanctions were based on findings that Ford failed torespond to NASD requests for information.

Alan Krouk (Registered Representative, Jamesburg,New Jersey) submitted a Letter of Acceptance, Waiverand Consent pursuant to which he was fined $5,000 andsuspended from association with any NASD member inany registered capacity for five years. Without admitting ordenying the allegations, Krouk consented to the describedsanctions and to the entry of findings that he receivedfunds from certain customers in payment of insurancepolicy premiums, and caused the funds to be applied andcredited in payment of other customers’ policies for whichpayment was due but had not been received. The NASDdetermined that thereafter, when funds were received fromcustomers whose policies had been improperly credited,Krouk caused those customers’ funds to be credited topolicies of customers whose funds had been previouslymisapplied.

Alan J. LaCava (Registered Representative,Philadelphia, Pennsylvania) was fined $15,000, suspend-ed from association with any NASD member in any capac-ity for 30 days, and ordered to requalify as a generalsecurities representative. The sanctions were based onfindings that LaCava recommended to public customers,and effected in their accounts, the purchases of securitieswithout having reasonable grounds to believe that securi-ties he recommended were suitable for the customers.Furthermore, the NASD determined that, in inducing andeffecting the purchases, LaCava intentionally, recklessly,or negligently engaged in deceptive and/or fraudulentdevices or practices, made false and misleading statementsof material facts, and/or failed to disclose material facts.The findings also stated that LaCava effected unauthorizedtransactions in a customer’s account.

Deborah L. Leonard (Registered Representative,Muncy, Pennsylvania) submitted a Letter of Acceptance,Waiver and Consent pursuant to which she was fined$20,000 and barred from association with any NASDmember in any capacity. Without admitting or denying theallegations, Leonard consented to the described sanctionsand to the entry of findings that she failed to respond fullyto NASD requests for information.

Stephen F. Maertzig, Sr. (Registered Representative,Philadelphia, Pennsylvania) was fined $20,000 and barredfrom association with any NASD member in any capacity.The sanctions were based on findings that Maertzig failed torespond to NASD requests for information.

Julio C. Meade (Registered Representative,Centreville, Virginia) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$10,000 and suspended from association with any NASDmember in any capacity for 30 days. Without admitting ordenying the allegations, Meade consented to the describedsanctions and to the entry of findings that he participated inprivate securities transactions while failing to provide priorwritten notice to his member firms of his participation insuch transactions.

Meade’s suspension begins on October 4, 1997 and willconclude on November 2, 1997.

Richard B. Perry (Registered Representative,Southampton, Pennsylvania) submitted an Offer ofSettlement pursuant to which he was fined $1,000 andsuspended from association with any NASD member inany capacity for six months. Without admitting or denyingthe allegations, Perry consented to the described sanctionsand to the entry of findings that he failed to respond toNASD requests for information.

Shamrock Partners, Ltd. (Media, Pennsylvania) andJames T. Kelly (Registered Principal, NewtownSquare, Pennsylvania) were fined $15,000, jointly andseverally, and required to pay $10,674.22 in restitution tocustomers, jointly and severally, demonstrate correctiveaction with regard to their mark-up and mark-down policy,and submit to a staff interview. The NBCC affirmed thesanctions following appeal of a Philadelphia DBCC deci-sion. The sanctions were based on findings that the firm,acting through Kelly, effected in a principal capacity pur-chases of common stock from public customers at pricesthat were not fair and reasonable in that the markdowns onthe purchases exceeded five percent.

The firm and Kelly have appealed this action to the SECand the sanctions are not in effect pending consideration ofthe appeal.

Robert L. Swick (Registered Representative, Towson,Maryland) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $50,000 andbarred from association with any NASD member in anycapacity. Without admitting or denying the allegations,Swick consented to the described sanctions and to theentry of findings that he forged the signatures of policy-holders on takeover request forms and letters requesting hebe assigned as agent of record for their policies.

Kimberly Lynn Woodward (RegisteredRepresentative, Chandler, Arizona) submitted a Letterof Acceptance, Waiver and Consent pursuant to which shewas fined $200,000 and barred from association with anyNASD member in any capacity. Without admitting ordenying the allegations, Woodward consented to thedescribed sanctions and to the entry of findings that sheconverted to her own use monies totaling $195,543.09from the account of a public customer. The findings alsostated that Woodward created falsified statements for amutual fund, purporting to show that the monies had beendeposited into that fund in the customer’s name when, infact, the funds were deposited into checking accounts shecontrolled.

November ActionsStephanie Ann Murray (Registered Representative,Trenton, New Jersey) was barred from association withany NASD member in any capacity. The sanction wasbased on findings that Murray, while taking the Series 7exam, had in her possession notes relating to the subjectmatter of the exam.

Harvey F. Neustadt (Registered Representative,Easton, Maryland) was fined $1,500,000, barred fromassociation with any NASD member in any capacity, andrequired to pay $306,494.32 plus interest in restitution.The sanctions were based on findings that Neustadt con-verted $326,494.32 from public customers and failed torespond to NASD requests for information.

Delos G. Smith, III (Registered Representative,Richmond, Virginia) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$20,000 and barred from association with any NASDmember in any capacity. Without admitting or denying theallegations, Smith consented to the described sanctionsand to the entry of findings that he failed to respond to anNASD request to appear for an on-the-record interview.

December ActionsNone

District 10 - the five boroughs of New York City and theadjacent counties in New York (the counties of Nassau,Orange, Putnam, Rockland, Suffolk, and Westchester)and northern New Jersey (the state of New Jersey,except for the counties of Atlantic, Burlington, Camden,Cape May, Cumberland, Gloucester, Mercer, Ocean,and Salem)

September ActionsJack Robert Basile (Registered Representative,Brooklyn, New York) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$50,000, barred from association with any NASD memberin any capacity, and ordered to disgorge $206,601 to theNASD. Without admitting or denying the allegations,Basile consented to the described sanctions and to theentry of findings that he arranged to have an impostor takethe Series 7 exam on his behalf. The findings also statedthat Basile failed to respond to NASD requests to appearfor an on-the-record interview.

Abdul Wadud Choudhury (Registered Representative,Jackson Heights, New York) was fined $42,663, barredfrom association with any NASD member in any capacity,and ordered to pay $3,092.14, plus interest, in restitution tohis member firm. The sanctions were based on findingsthat Choudhury received $4,144.17 from a public customerto repay loans on insurance policies and, instead, he con-verted $2,411.10 of the funds to his own use and benefit.Choudhury also received a $2,121.50 check from a publiccustomer to reinstate a lapsed insurance policy and con-verted the funds to his own use by using the funds as par-tial repayment of monies owed to other customers.Furthermore, Choudhury failed to respond to NASDrequests for information.

Michael A. Formiglia (Registered Representative,Selden, New York) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$50,000 and barred from association with any NASDmember in any capacity. Without admitting or denying theallegations, Formiglia consented to the described sanctionsand to the entry of findings that he forged the signatures ofpublic customers on disbursement request forms withouttheir knowledge or consent and used the documents toobtain unauthorized loans totaling $515.90. The findingsalso stated that Formiglia used the loans to fund policies oftwo different individuals. Furthermore, the NASD deter-mined that Formiglia created an insurance policy for anon-existent individual, funded the policy by removing$390 from the policy of an existing customer, without theknowledge or consent of the customer, and used themoney to fund the creation of the fictitious policy.

Barry Mitchell Goldstein (Registered Representative,Plainview, New York) submitted an Offer of Settlementpursuant to which he was fined $2,500, suspended fromassociation with any NASD member in any capacity for 30days, and required to submit proof of restitution to cus-tomers. Without admitting or denying the allegations,Goldstein consented to the described sanctions and to theentry of findings that he instructed the back office of hismember firm to issue checks totaling $49,366 from theaccounts of public customers. The NASD found thatGoldstein retrieved the checks from the customers’ mail-box, signed their names on the checks, double endorsed 20of the checks totaling $19,066, and deposited the fundsinto his personal bank account. The findings also statedthat Goldstein signed the customers’ names on the checksto enable him to negotiate the checks without a writtenpower of attorney over the customers’ account. The cus-tomers involved have indicated that they had orally autho-rized this activity and received all funds withdrawn fromthe accounts.

Howard Leroy Gregg, III (Registered Representative,State College, Pennsylvania) submitted an Offer ofSettlement pursuant to which he was barred from associa-tion with any NASD member in any capacity and orderedto disgorge $1,500. Without admitting or denying the alle-gations, Gregg consented to the described sanctions and tothe entry of findings that he purchased shares of a newissue that traded at a premium in the immediate aftermar-ket in contravention of the Board of Governors’ Free-Riding and Withholding Interpretation. The findings alsostated that Gregg failed to notify his member firm in writ-ing that he intended to open an account at another memberfirm, nor did he advise the other firm of his associationwith his member firm, and purchased shares of stock with-

45


out giving prior written notice to his member firm.Furthermore, the NASD determined that Gregg failed torespond to NASD requests for information.

Oliver Peter Hosang, III (Registered Representative,Brooklyn, New York) was fined $20,000 and barred fromassociation with any NASD member in any capacity. Thesanctions were based on findings that Hosang failed torespond to NASD requests for information.

Joseph Krieger Kahn (Registered Representative,Marlboro, New Jersey) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$40,000 and barred from association with any NASDmember in any capacity. Without admitting or denying theallegations, Kahn consented to the described sanctions andto the entry of findings that he converted customer fundstotaling $8,000 from the customer’s account into his ownaccount without the customer’s knowledge, consent, orauthorization.

Eric Kostyukovsky (Registered Representative,Brooklyn, New York) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$25,000 and barred from association with any NASDmember in any capacity. Without admitting or denying the allegations, Kostyukovsky consented to the describedsanctions and to the entry of findings that he arranged tohave an impostor take the Series 7, 24, and 63 exams onhis behalf.

Joseph Latona (Registered Representative, StatenIsland, New York) was fined $70,000 and barred fromassociation with any NASD member in any capacity. Thesanctions were based on findings that Latona engaged in asecurities business, engaged in trading for a proprietaryaccount of his former member firm, and received a per-centage of the profits in that account, while subject to dis-qualification due to two felony convictions. Latona alsofailed to respond to NASD requests for information and toappear for an on-the-record interview.

Nicholas Petrella (Registered Representative, Oakdale,New York) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $71,500 andbarred from association with any NASD member in anycapacity. Without admitting or denying the allegations,Petrella consented to the described sanctions and to theentry of findings that he participated in private securitiestransactions away from his member firm in the accounts ofpublic customers. The findings also stated that Petrellafailed to respond to NASD requests for information.

Edward Pyatetsky (Registered Representative, StatenIsland, New York) submitted a Letter of Acceptance,Waiver and Consent pursuant to which he was fined$50,000 and barred from association with any NASDmember in any capacity. Without admitting or denying theallegations, Pyatetsky consented to the described sanctionsand to the entry of findings that he arranged to have animpostor take the Series 7 exam on his behalf. The find-ings also stated that Pyatetsky failed to respond to NASDrequests to appear for an on-the-record interview.

Alan J. Russo (Registered Representative, Harrison,New York) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $100,000 andbarred from association with any NASD member in anycapacity. Without admitting or denying the allegations,Russo consented to the described sanctions and to theentry of findings that he received funds totaling$337,887.97 from a public customer for investment pur-poses, misappropriated these funds, and converted them tohis own use. The findings also stated that Russo prepared afalse confirmation of securities activity for a public cus-tomer’s account, reflecting positions exceeding the cus-tomer’s true and accurate positions. Furthermore, theNASD determined that Russo entered into private securi-ties transactions without the prior knowledge or consent ofhis member firm.

Richard A Skinner, Jr. (Registered Representative,Glen Ridge, New Jersey) submitted a Letter of

Acceptance, Waiver and Consent pursuant to which hewas fined $250,000, required to pay restitution plus inter-est to public customers, and barred from association withany NASD member in any capacity. Without admitting ordenying the allegations, Skinner consented to the describedsanctions and to the entry of findings that he misappropri-ated between $600,000 and $1,900,000 of public customerfunds and converted the funds for the use and benefit ofother customers and/or for his personal use.

Jeffrey Laurence Streich (Registered Representative,New York, New York) was fined $50,000 and barredfrom association with any NASD member in any capacity.The sanctions were based on findings that Streich executedtransactions in the accounts of public customers withoutthe prior knowledge, authorization, or consent of the cus-tomers.

George Lorenzo Swan (Registered Principal,Ridgewood, New Jersey) submitted a Letter ofAcceptance, Waiver and Consent pursuant to which hewas fined $170,000 and barred from association with anyNASD member in any capacity. Without admitting ordenying the allegations, Swan consented to the describedsanctions and to the entry of findings that he executed, orcaused to be executed, securities transactions in theaccounts of public customers, without the prior knowl-edge, authorization, or consent of the customers, thatinvolved transfers of stock from his personal and corporateaccounts to customer accounts so that he might avoid mar-gin calls in his accounts. The findings also stated thatSwan failed to respond to an NASD request to appear foran on-the-record interview and failed to apprise his mem-ber firm’s financial and operations principal of certain lia-bilities incurred by the firm, thereby causing the firm tofail to maintain its minimum required net capital.

October ActionsEdwin Aponte (Registered Representative, Yonkers,New York) submitted an Offer of Settlement pursuant towhich he was fined $5,000 and barred from associationwith any NASD member in any capacity. Without admit-ting or denying the allegations, Aponte consented to thedescribed sanctions and to the entry of findings that hechanged a public customer’s address to Aponte’s sister-in-law’s address, forged the customer’s name on a surrenderof policy form, and received a $565.74 check representingthe surrender value of the customer’s policy. The NASDfound that Aponte forged the customer’s endorsement tothe check, negotiated the check, and converted the fundsfor his own personal use. The findings also stated thatAponte failed to disclose on a Form U-4 that he was thesubject of a consumer-initiated complaint.

Ira Warren Bassin (Registered Principal, Plainview,New York) submitted an Offer of Settlement pursuant towhich he was fined $2,500 and suspended from associationwith any NASD member in any capacity for 30 days.Without admitting or denying the allegations, Bassin con-sented to the described sanctions and to the entry of find-ings that he failed to respond timely to NASD requests forinformation.

James Anthony Contacessa (RegisteredRepresentative, Glen Head, New York) was fined$50,000, barred from association with any NASD memberin any capacity, and ordered to disgorge $239,835.95. Thesanctions were based on findings that Contacessa arrangedto have an impostor take the Series 7 exam on his behalf.Contacessa also failed to respond to NASD requests forinformation.

Dominick Salvatore DeLorenzo (RegisteredRepresentative, Brooklyn, New York) was fined $20,000and barred from association with any NASD member inany capacity. The sanctions were based on findings thatDeLorenzo failed to respond to NASD requests for infor-mation.

Rene DeScartin (Registered Representative, Houston,Texas) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $25,000 and

barred from association with any NASD member in anycapacity. Without admitting or denying the allegations,DeScartin consented to the described sanctions and to theentry of findings that he forged policyholder signatures andmisappropriated $6,750.20.

L. B. Saks, Inc. (New York, New York) and Victor J.Puzio (Registered Principal, Rutherford, New Jersey)submitted a Letter of Acceptance, Waiver and Consentpursuant to which they were fined $10,000, jointly andseverally. Without admitting or denying the allegations,the respondents consented to the described sanction and tothe entry of findings that the firm, acting through Puzio,conducted a securities business while failing to maintainits minimum required net capital.

Thomas A. Ortwein (Registered Principal, New York,New York) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $25,000, suspend-ed from association with any NASD member in any capac-ity for 10 business days, and suspended from associationwith any NASD member in any supervisory capacity forthree months (suspensions served). Without admitting ordenying the allegations, Ortwein consented to thedescribed sanctions and to the entry of findings that heattempted to affect the closing price of a stock by enteringa trade on behalf of a public customer at a time when heknew that the transaction was not a bona fide customerorder and, in fact, was done without the customer’s priorknowledge, authorization, or consent. The findings alsostated that Ortwein executed a purchase transaction onbehalf of a customer account without the customer’s priorknowledge and/or written authority.

Eric Dean Pokross (Registered Representative, ValleyStream, New York) was fined $20,000 and barred fromassociation with any NASD member in any capacity. Thesanctions were based on findings that Pokross failed torespond to NASD requests to appear for an on-the-recordinterview.

Jeffrey Pokross (Registered Principal, New York, NewYork) was fined $20,000 and barred from association withany NASD member in any capacity. The sanctions werebased on findings that Pokross failed to respond to NASDrequests to appear for an on-the-record interview.

Steven M. Usarzewicz (Registered Representative,Hamilton, New Jersey) submitted an Offer of Settlementpursuant to which he was fined $20,000 and barred fromassociation with any NASD member in any capacity.Without admitting or denying the allegations, Usarzewiczconsented to the described sanctions and to the entry offindings that he failed to respond to NASD requests forinformation.

November ActionsFrank J. Casillo (Registered Principal, Farmingdale,New York) submitted an Offer of Settlement pursuant towhich he was fined $10,000 and suspended from associa-tion with any NASD member in a principal capacity for 30days. Without admitting or denying the allegations, Casilloconsented to the described sanctions and to the entry offindings that he failed to implement, maintain, and enforceadequate supervisory procedures in connection with direct-ing brokers during an initial public offering.

Vita Marie Colangelo (Registered Representative,Cherry Hill, New Jersey) submitted an Offer ofSettlement pursuant to which she was fined $5,000, sus-pended from association with any NASD member in anycapacity for 18 months, and ordered to requalify by exam.Without admitting or denying the allegations, Colangeloconsented to the described sanctions and to the entry offindings that she established three fictitious accounts at hermember firm for public customers, completed purchaseapplications, and prepared a fictitious check on behalf of acustomer without their prior knowledge, authorization orconsent.

46


Cressida Capital, Inc. a/k/a Norfolk Securities Corp.(New York, New York) and Ian Richard Hosang(Registered Principal, Brooklyn, New York) were fined$50,000, jointly and severally. In addition, the firm wasexpelled from NASD membership and Hosang was barredfrom association with any NASD member in any capacity.The sanctions were based on findings that the firm, actingthrough Hosang, permitted registered persons at the firm tocontinue to perform duties as registered persons at suchtimes as they had not complied with the regulatory andfirm elements of the Securities Industry ContinuingEducation Program.

Furthermore, the firm, acting through Hosang, failed todelegate responsibility for compliance with the regulatoryelement and failed to maintain written procedures for com-pliance with the regulatory and firm elements. In addition,the firm, acting through Hosang, failed to maintain writtensupervisory procedures that would mandate an annualneeds analysis, a written training plan, and an implementa-tion plan, and failed to maintain books and records in com-pliance with the firm element of the continuing educationrules. Hosang also failed to respond to an NASD request toappear for an on-the-record interview.

Leonard Sterling Dyer (Registered Representative,Teaneck, New Jersey) was fined $25,000 and barred fromassociation with any NASD member in any capacity. Thesanctions were based on findings that Dyer received $416from a public customer intended for the purchase of aninsurance policy and gave the customer a receipt indicatingthe full payment of the premium. However, Dyer neveropened a policy and converted the funds to his own use.Dyer also failed to respond to NASD requests for infor-mation.

Christopher William Griffin (RegisteredRepresentative, New York, New York) was fined$20,000 and barred from association with any NASDmember in any capacity. The sanctions were based onfindings that Griffin failed to respond to NASD requestsfor information.

Theodore Anthony Matagrano (RegisteredRepresentative, Ridgewood, New York) was fined$20,000 and barred from association with any NASDmember in any capacity. The sanctions were based onfindings that Matagrano failed to respond to NASDrequests for information.

Salvatore Piazza (Associated Person, Milburn, NewJersey) was fined $20,000 and barred from associationwith any NASD member in any capacity. The sanctionswere based on findings that Piazza failed to respond toNASD requests to appear for an on-the-record interview.

James Alfred Pierce (Registered Representative,Holbrook, New York) submitted an Offer of Settlementpursuant to which he was fined $20,000 and barred fromassociation with any NASD member in any capacity.Without admitting or denying the allegations, Pierce con-sented to the described sanctions and to the entry of find-ings that he failed to respond to NASD requests to appearfor an on-the-record interview.

Nancy Roebuck (Associated Person, New York, NewYork) was fined $20,000 and barred from association withany NASD member in any capacity. The sanctions werebased on findings that Roebuck failed to respond to NASDrequests to appear for an on-the-record interview.

December ActionsEdward Azrilyan (Registered Representative,Cedarhurst, New York) was fined $20,000 and barredfrom association with any NASD member in any capacity.The sanctions were based on findings that Azrilyan failedto respond to NASD requests for information.

Jimmy Berkovich (Registered Representative,Brooklyn, New York) was fined $10,000 and suspendedfrom association with any NASD member in any regis-tered capacity for one year. The sanctions were based on

findings that Berkovich failed to timely respond to NASDrequests for information.

Lawrence P. Bruno, Jr. (Registered Representative,Brooklyn, New York) was fined $25,000, barred fromassociation with any NASD member in any capacity, andordered to disgorge $678,067 to the NASD. The sanctionswere based on findings that Bruno arranged to have animpostor take the Series 7 exam on his behalf.

Bruno has appealed this action to the NBCC and the sanc-tions are not in effect pending consideration of the appeal.

Weidi Feng (Registered Representative, Elmhurst, NewYork) was fined $20,000 and barred from association withany NASD member in any capacity. The sanctions werebased on findings that Feng, while taking the Series 7exam, had in his possession notes that contained informa-tion relevant to the exam. Feng also failed to respond toNASD requests to appear for on-the-record interviews.

Randall Scott Ferman (Registered Representative,Flanders, New Jersey) submitted an Offer of Settlementpursuant to which he was suspended from association withany NASD member in any capacity for 20 business daysand ordered to requalify by exam as a general securitiesrepresentative. Without admitting or denying the allega-tions, Ferman consented to the described sanctions and tothe entry of findings that he recommended and executedtransactions in the account of a public customer withouthaving a reasonable basis for believing that such recom-mendations were suitable for the customer or for believingthat opening and maintaining a margin account was suit-able for the customer based on the customer’s financialsituation, needs, investment objectives, and investmentexperience. The findings also stated that Randall mademisrepresentations to a public customer in connection witha loan he had requested for the customer. Furthermore, theNASD determined that Ferman engaged in outside busi-ness activities without notifying his member firm of thetrue nature of his activities.

Nicholas Liapunov (Registered Representative,Ridgefield, Connecticut) submitted a Letter ofAcceptance, Waiver and Consent pursuant to which hewas fined $5,000, suspended from association with anyNASD member in any capacity, and required to requalifyby exam in all capacities. Without admitting or denyingthe allegations, Liapunov consented to the described sanc-tions and to the entry of findings that he forged a publiccustomer’s signature on a disbursement request form with-out the customer’s knowledge, authorization or consent.

Douglas John Mangan (Registered Representative,Massapequa, New York) was fined $120,000 and barredfrom association with any NASD member in any capacity.The sanctions were based on findings that Mangan createda false and inaccurate customer securities account state-ment and caused his member firm’s records to falsely indi-cate the customer’s address without the knowledge,consent or authorization of the customer. Mangan alsofailed to respond to NASD requests to appear for an on-the-record interview.

Mangan has appealed this action to the NBCC and thesanctions are not in effect pending consideration of theappeal.

District 11 - Connecticut, Maine, Massachusetts, NewHampshire, Rhode Island, Vermont, and New York(except for the counties of Nassau, Orange, Putnam,Rockland, Suffolk, and Westchester; the counties ofLivingston, Monroe, and Steuben; the remainder of thestate west of such counties; and the five boroughs ofNew York City)

September ActionsNone

October ActionsNone

November ActionsThomas A. Arpante (Registered Representative,Holden, Massachusetts) was fined $70,000 and barredfrom association with any NASD member in any capacity.The sanctions were based on findings that Arpante failedto respond to NASD requests for information. Arpante alsoforged documents in transactions with customers.

Randall J. DeMatteo (Registered Representative,Bridgeport, Connecticut) was fined $27,500 and barredfrom association with any NASD member in any capacity.The sanctions were based on findings that DeMatteofailed to respond to NASD requests for information.DeMatteo also engaged in private securities transactionsand failed to receive authorization from his member firmto engage in such activities.

Steven A. Hall (Registered Representative,Scarborough, Maine) was fined $70,000 and barred fromassociation with any NASD member in any capacity. Thesanctions were based on findings that Hall failed torespond to NASD requests for information. Hall alsoengaged in private securities transactions and failed toreceive authorization from his member firm to engage insuch activities.

Marc T. Schaufler (Registered Representative, NewMilford, Connecticut) was fined $20,000 and barred fromassociation with any NASD member in any capacity. Thesanctions were based on findings that Schaufler failed torespond to NASD requests for information.

December ActionsJeffrey Ward Jones (Registered Principal, Guilderland,New York) was fined $100,000 and barred from associa-tion with any NASD member in any capacity. The sanc-tions were based on findings that Jones conductedunauthorized and excessive trading in public customeraccounts and effected transactions without written discre-tionary authority from the customers. In addition, Joneseffected customer transactions while not properly regis-tered and failed to respond to NASD requests to appear foran on-the-record interview.

Charles R. Snyder (Registered Principal, SouthGlastonbury, Connecticut) submitted an Offer ofSettlement pursuant to which he was fined $25,000.Without admitting or denying the allegations, Snyder con-sented to the described sanction and to the entry of find-ings that he engaged in private securities transactionsoutside the regular course or scope of his employment withhis member firm without giving written notice to his mem-ber firm describing in detail the proposed transaction, hisproposed role therein, and whether he received or was toreceive selling compensation in connection with the trans-action.

Margaret L. Talbot (Registered Representative,Oneonta, New York) submitted a Letter of Acceptance,Waiver and Consent pursuant to which she was fined$50,000 and barred from association with any NASDmember in any capacity. Without admitting or denying theallegations, Talbot consented to the described sanctionsand to the entry of findings that she accepted from a publiccustomer a $10,000 check intended for investment into avariable annuity. The NASD found that Talbot depositedthe check into her personal bank account and converted theproceeds to her own use and benefit.

Market Regulation Committee

September ActionsMitchell Aguirre (Registered Representative,Woodhaven, New York) submitted an Offer ofSettlement pursuant to which he was barred from associa-tion with any NASD member in any capacity. Without

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admitting or denying the allegations, Aguirre consented tothe described sanction and to the entry of findings that hesolicited customers and recommended the purchase ofsecurities by making misrepresentations, omissions ofmaterial facts, and price predictions in order to induce thecustomers to place purchase orders for stock and committo investment decisions. The findings also stated thatAguirre purchased and sold shares of stock for acustomer’s account without the customer’s prior knowl-edge and consent. The NASD also found that Aguirre mis-appropriated to his own use and benefit $36,648.36 thatwas withdrawn from a customer’s account without thecustomer’s knowledge or consent. Furthermore, the NASDdetermined that Aguirre participated in trading activitieswhen he was not properly registered with the NASD.

Genesis Merchant Group Securities, L.P. (SanFrancisco, California) submitted a Letter of Acceptance,Waiver and Consent pursuant to which the firm was fined$19,500 and ordered to designate a general securities prin-cipal to supervise the firm’s SOES activities. Withoutadmitting or denying the allegations, the firm consented tothe described sanctions and to the entry of findings that itentered proprietary or non-public customer orders into theSOES and divided orders in excess of the maximum ordersize into smaller parts to be entered into the system. Thefindings also stated that the firm entered orders into SOESfor securities for which it was a registered market makerand failed to establish, maintain, and enforce adequatewritten supervisory procedures. Furthermore, the NASDdetermined that the firm did not designate a qualified gen-eral securities principal to supervise its SOES activity.

Ronald J. Geraci, Sr. (Registered Representative,Boynton Beach, Florida) was fined $20,000 and barredfrom association with any NASD member in any capacity.The sanctions were based on findings that Geraci failed torespond to NASD requests for information.

Investors Associates, Inc. (Hackensack, New Jersey)submitted a Letter of Acceptance, Waiver and Consentpursuant to which it was fined $15,000 and required toparticipate in a staff conference and to submit to theNASD a revised copy of its written supervisoryprocedures. Without admitting or denying the allegations,the firm consented to the described sanctions and to theentry of findings that it failed to time stamp the time ofentry or execution on order tickets. The findings also statedthat the firm failed to establish, maintain, and enforce writ-ten supervisory procedures reasonably designed to achievecompliance with the applicable securities laws and regula-tions regarding trade reporting.

Leonard J. Koenig (Registered Representative,Boynton Beach, Florida) was fined $20,000 and barredfrom association with any NASD member in any capacity.The sanctions were based on findings that Koenig failed torespond to NASD requests for information.

Scott Allan Miller (Registered Representative,Alpharatta, Georgia) was fined $20,000 and barred fromassociation with any NASD member in any capacity. Thesanctions were based on findings that Miller failed torespond to NASD requests for information.

Securities Planners, Inc. (New York, New York),Edward McKay, Jr. (Registered Principal, New York,New York), Alex David Shindman (RegisteredPrincipal, Guttenberg, New Jersey), Alex Gincherman(Registered Representative, Brooklyn, New York), IgorShekhtman (Registered Principal, New York, NewYork), Michael Garber (Registered Representative,Brooklyn, New York), Mark Furman (RegisteredPrincipal, Pompano Beach, Florida), and EugeneFlaksman (Registered Representative, Brooklyn, NewYork). The firm was fined $50,000 and McKay was fined$50,000 and barred from association with any NASDmember in any supervisory and/or principal capacity.Shindman was fined $25,000 and barred from associationwith any NASD member in any capacity. Ginchermanwas fined $15,000, suspended from association with anyNASD member in any capacity for 45 days, required topay $6,093.75 plus interest in restitution to a public cus-

tomer, and required to requalify as a general securitiesrepresentative. Shekhtman was fined $50,000, required topay $216,498.75 plus interest in restitution, and barredfrom association with any NASD member in any capacity.Garber was fined $20,000, suspended from associationwith any NASD member in any capacity for six monthsplus 60 days, required to pay $11,925 in restitution, andrequired to requalify as a general securities representativeby taking and passing the Series 7 exam. Furman was fined$55,000, suspended from association with any NASDmember in any capacity for 30 days, required to pay$5,500 plus interest in restitution to a customer, barredfrom association with any NASD member in any supervi-sory and/or principal capacity, and required to requalify asa general securities representative by taking and passingthe Series 7 exam. Flaksman was fined $10,000, suspendedfrom association with any NASD member in any capacityfor 30 days, required to pay $22,000 in restitution, andrequired to requalify as a general securities representativeby taking and passing the Series 7 exam.

The sanctions were based on findings that the firm, actingthrough McKay, failed to establish, maintain, or enforceadequate written supervisory procedures. Furthermore,Shekhtman, Gincherman, Garber, Flaksman, and Furmanmade material misrepresentations and omissions to cus-tomers concerning a stock. Shekhtman, Gincherman, andFlaksman also effected unauthorized transactions in cus-tomer accounts. In addition, Shekhtman failed to executesell orders and Furman failed to supervise registered repre-sentatives who made material misrepresentations andomissions in connection with the sales of stock as well asregistered representatives who made unauthorized trades,and failed to execute sell orders for customers. Garber andShindman failed to respond to NASD requests for infor-mation.

Kevin Eric Shaughnessy (Registered Representative,Pittsburgh, Pennsylvania) was fined $11,675, barredfrom association with any NASD member in any capacity,required to pay $390 in losses to customers, and requiredto repay $1,526.37 in commissions to customers. TheNBCC imposed the sanctions following appeal of aMarket Regulation Committee decision. The sanctionswere based on findings that Shaughnessy entered into anarrangement with a non-registered individual whereby heagreed to sell shares of stock to his retail customers inexchange for compensation, without disclosing thearrangement with the customers or his member firm.Shaughnessy also failed to provide prompt written noticeof this arrangement to his member firm and accepted com-pensation from a stock promoter.

Shaughnessy has appealed this action to the SEC and thesanctions, other than the bar, are not in effect pending con-sideration of the appeal.

October ActionsHerzog, Heine, Geduld, Inc. (Jersey City, New Jersey)submitted a Letter of Acceptance, Waiver and Consentpursuant to which the firm was fined $11,000. Withoutadmitting or denying the allegations, the firm consented tothe described sanction and to the entry of findings that itfailed to contemporaneously execute customers’ limitorders when obligated to do so. Furthermore, the NASDfound that the firm failed to report an order entry identifi-cation to ACTS and incorrectly reported third markettransactions with the improper order entry/market makerdesignation by the “give up” reporting side executing deal-er. The findings also stated that the firm failed to establish,maintain, and enforce adequate written supervisory proce-dures with respect to its limit order activity.

Needham & Company, Inc. (New York, New York)submitted a Letter of Acceptance, Waiver and Consentpursuant to which the firm was fined $15,000. Withoutadmitting or denying the allegations, the firm consented tothe described sanction and to the entry of findings that itwas a registered market maker in securities, was presentedorders at its published bid or offer, and failed to executethe orders, thereby failing to honor its published quotation.The findings also stated that the firm failed to maintain and

enforce written supervisory procedures reasonablydesigned to achieve compliance with the applicable securi-ties laws and regulations concerning the SEC Firm QuoteRule and other related rules.

Troster Singer Corp., A Division of Spear, Leeds &Kellogg (Jersey City, New Jersey) submitted a Letter ofAcceptance, Waiver and Consent pursuant to which thefirm was fined $15,000. Without admitting or denying theallegations, the firm consented to the described sanctionand to the entry of findings that it was a registered marketmaker in securities, was presented orders at its publishedbid or offer, and failed to execute the orders, thereby fail-ing to honor its published quotation. The findings alsostated that the firm failed to maintain and enforce writtensupervisory procedures reasonably designed to achievecompliance with the applicable securities laws and regula-tions concerning the SEC Firm Quote Rule and other relat-ed rules.

November ActionsAmr I. Elgindy (Registered Principal, Colleyville,Texas) submitted an Offer of Settlement pursuant to whichhe was fined $30,000, suspended from association withany NASD member in any principal capacity for one year,suspended from association with any NASD member inany capacity for 30 days, and required to produce a copyof his member firm’s implemented written supervisoryprocedures specifically with respect to overseeing hisactivities to deter and detect a recurrence of the conductalleged in the complaint. Without admitting or denying theallegations, Elgindy consented to the described sanctionsand to the entry of findings that he caused his member firmto execute 108 orders through SOES for the firm’saccount. The findings also stated that Elgindy caused hismember firm to enter non-bona fide orders through theSelectNetSM System for the firm’s account that were eithertimed out or canceled by Elgindy before they could beexecuted. Furthermore, the NASD found that Elgindycaused trades reported to ACT to be canceled by failing toacknowledge or confirm such trades. The NASD alsodetermined that Elgindy failed to ensure that his memberfirm establish, maintain, and enforce supervisory proce-dures that would have enabled the firm to deter and detectthe above conduct.

Nicholas Mark Ellis (Registered Principal, Irvine,California) submitted a Letter of Acceptance, Waiver andConsent pursuant to which he was fined $20,000 and sus-pended from association with any NASD member as ageneral securities principal for two years. Without admit-ting or denying the allegations, Ellis consented to thedescribed sanctions and to the entry of finding that a mem-ber firm, acting through Ellis, conducted a general securi-ties business but failed to designate a limited financial andoperations principal. The findings also stated that a mem-ber firm, acting through Ellis, executed options and munic-ipal transactions but failed to have and designate aregistered options principal and municipal securities prin-cipal.

Ellis' suspension began September 5, 1997 and will con-clude September 5, 1999.

Furman Selz LLC (New York, New York) submitted aLetter of Acceptance, Waiver and Consent pursuant towhich the firm was fined $12,500. Without admitting ordenying the allegations, the firm consented to thedescribed sanction and to the entry of findings that it failedto report the order entry firm in 61 transactions to ACTand failed to designate transactions in Nasdaq NationalMarket securities as late to ACT. The findings also statedthat the firm failed to accept or decline a transaction within20 minutes after execution, to preserve a memorandum ofa brokerage order for a period of not less than three years,and to preserve the memoranda of each member-to-mem-ber limit order received by the firm. Furthermore, theNASD determined that the firm failed to establish, main-tain, and enforce written supervisory procedures reason-ably designed to achieve compliance with the applicablesecurities laws and regulations regarding trade reporting,limit orders, best execution, and use of SOES.

48


Blake M. Russ (Registered Representative, Boca Raton,Florida), Dean C. Verrigni (Registered Representative,Wappingers Falls, New York), and Gary H. Hrycyk(Registered Representative, New York, New York)submitted Offers of Settlement pursuant to which Russwas fined $18,000 and barred from association with anyNASD member in any capacity and Verrigni was fined$29,000 and barred from association with any NASDmember in any capacity. Hrycyk was fined $13,000 andbarred from association with any NASD member in anycapacity. Without admitting or denying the allegations, therespondents consented to the described sanctions and tothe entry of findings that they engaged in manipulative,deceptive, or other fraudulent activities in connection withthe purchase or sale of securities.

December ActionsDean Witter Reynolds, Inc. (New York, New York)submitted a Letter of Acceptance, Waiver and Consentpursuant to which the firm was fined $13,000. Withoutadmitting or denying the allegations, the firm consented tothe described sanction and to the entry of findings that itfailed to designate as late to the ACT transactions in listedand Nasdaq securities. The NASD also found that the firmfailed to report to ACT the correct price of transactions inlisted securities, failed to time stamp the time of executionon order tickets, and failed to contemporaneously executeshares of customer limit orders after it bought shares ofstock for its own market-making account. Furthermore, theNASD determined that the firm failed to establish, main-tain, and enforce written supervisory procedures reason-ably designed to achieve compliance with the applicablesecurities laws and regulations regarding trade reportingand the limit order protection interpretation.

Gerard, Klauer, Mattison & Co., Inc. (New York, NewYork) submitted a Letter of Acceptance, Waiver andConsent pursuant to which the firm was fined $15,000.Without admitting or denying the allegations, the firmconsented to the described sanction and to the entry offindings that it failed to report to ACT the contra side exe-cuting broker in transactions in eligible securities and

failed to accept or decline a transaction in an eligible secu-rity within 20 minutes after execution. The findings alsostated that the firm reported to ACT the incorrect symbolindicating whether one transaction in an eligible securitywas as principal or agent, and failed to show on memoran-da of broker orders the terms and condition of each suchorder or instructions and any modification or cancellationthereof, the account for which entered, the time of theentry, the price at which executed and, to the extent feasi-ble, time of execution or cancellation. Furthermore, theNASD determined that the firm failed to establish, main-tain, and enforce written supervisory procedures reason-ably designed to achieve compliance with the applicablesecurities laws and regulations regarding trade reportingand record keeping.

Michael B. Jawitz (Registered Representative,Washington, D.C.) was fined $50,000 and suspendedfrom association with any NASD member in any capacityfor one year and suspended thereafter as an equity traderuntil he takes and passes the Series 7 exam. The sanctionswere based on findings that Jawitz engaged in manipula-tive, deceptive, and fraudulent conduct by intentionallyand recklessly entering fictitious limit orders into his mem-ber firm’s order execution system that led to non-bona fidetransactions. Furthermore, Jawitz caused his memberfirm’s order execution system to fail to automatically exe-cute customer limit orders. Jawitz also intentionally andrecklessly published or circulated reports of purchase andsale transactions when he knew that such transactions werenon-bona fide.

Jawitz has appealed this action to the NBCC and the sanc-tions are not in effect pending consideration of the appeal.

Oppenheimer & Co., Inc. (New York, New York) sub-mitted a Letter of Acceptance, Waiver and Consent pur-suant to which the firm was fined $14,000. Withoutadmitting or denying the allegations, the firm consented tothe described sanction and to the entry of findings that itdesignated as late to ACT 25 block transactions in NasdaqNational Market securities, and failed to provide writtennotification disclosing to its customer that the price at

which each such transaction took place was at an averageprice. The findings also stated that the firm failed to indi-cate on order tickets the terms, conditions, or instructionsof each such order, and failed to contemporaneously exe-cute customer limit orders after it traded each such subjectsecurity for its own market-making account at a price thatwould satisfy each such customer limit order. Furthermore,the NASD found that the firm failed to establish, maintain,and enforce written supervisory procedures reasonablydesigned to achieve compliance with the applicable securi-ties laws and regulations regarding trade reporting, thelimit order protection interpretation, and record keeping.

Boris Poleschuk (Registered Representative, Brooklyn,New York) submitted an Offer of Settlement pursuant towhich he was suspended from association with any NASDmember in any capacity for one year and will be subject tospecial supervision for two years. Without admitting ordenying the allegations, Poleschuk consented to thedescribed sanctions and to the entry of findings that hemade material misrepresentations and omissions to hiscustomers concerning a stock. The findings also stated thatPoleschuk effected unauthorized transactions in his cus-tomers’ accounts.

Randall H. Taylor (Registered Representative, BaskingRidge, New Jersey) and Paul C. Mazzanobile(Registered Representative, Haworth, New Jersey)submitted an Offer of Settlement pursuant to which Taylorwas fined $50,000, suspended from association with anyNASD member in any capacity for 30 days, and suspendedfrom association with any NASD member in a principalcapacity for 60 days. Mazzanobile was fined $7,500 andsuspended from association with any NASD member inany capacity for 15 days. Without admitting or denying theallegations, the respondents consented to the describedsanctions and to the entry of findings that Taylor andMazzanobile engaged in a pattern and practice of attempt-ing to mark the open of the market for securities.

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