Don't Mess with Suspension Rules

Mar 1, 2007 12:00 PM, By Bill Singer

If you are like most working people, you go to the office every day. And, if you like your job, it can even be hard to stay away. But if you get a suspension from the NASD, don't give in to temptation. Stay away. Go on vacation.

NASD Procedural Rule 8310: Sanctions for Violation of the Rules authorizes the regulator to suspend any and all registrations you hold for a specific period of time or until a specific condition has been met.

Frankly, this rule strikes me as very straightforward. But just to make sure it's crystal clear, NASD has issued an interpretation of the rule, which can be found in NASD Procedural Rule IM-8310-1: Effect of a Suspension, Revocation, Cancellation or Bar. Please, carefully consider the regulator's commentary regarding suspension:

[A] member shall not allow such person to remain associated with it in any capacity, including a clerical or ministerial capacity. . .the member also shall not pay or credit any salary, or any commission, profit, or other remuneration that results directly or indirectly from any securities transaction, that the person associated with a member might have earned during the period of suspension.

Got That? Because These Guys Didn't

Kenneth Joseph Gilmore was a registered principal who engaged in securities activities during the term of his NASD suspension, and then attempted to conceal it from the NASD. So, in June 2006, NASD fined him $40,000 and suspended him from all principal and supervisory capacities for six months. Worst of all, Gilmore was required to sell his ownership interest in his firm within six months.

Registered rep Michael Francis O'Neill conducted joint business with an unregistered person who was subject to an industry bar for serious misconduct. O'Neill paid the barred individual for soliciting customers. In December, the NASD barred O'Neill for his violations.

And then there's the NASD matter that became a New York State criminal case. In the People of the State of New York v. Adam Cohen, et. al., a number of individuals denied under oath during an NASD on-the-record interview that an individual was supervising the retail operation of a broker/dealer in violation of an SEC-imposed bar. Ultimately, criminal charges were filed and a jury found several defendants guilty of first-degree perjury, for which fines and incarceration (up to 54 months) were imposed.

Do You Feel Lucky?

So, before you sneak into the office during a suspension, think about Clint Eastwood's challenge in the movie Dirty Harry: “You've got to ask yourself one question: ‘Do I feel lucky?’ Well, do ya?”

These days, no one is playing games with suspension-violation cases. Not the NASD. Not the SEC. Not even criminal prosecutors. And the table stakes are high — just consider what happened to each of the above individuals caught by the NASD — a bar, a suspension, the forced sale of an ownership interest, even jail time.

If you're not sure whether you should be engaging in certain activities during a suspension, don't get your legal advice from the crowd around the water cooler. Talk to your firm's legal counsel or compliance director — and get their opinions in writing. Of course, it would be best to raise any questions with your own lawyer during settlement negotiations with a regulator or when the hearing panel issues its decision. Make sure you fully understand the limits imposed upon you and what, if any, “wiggle room” exists.

Finally, if you are truly perplexed, write to the NASD and get their authorization in writing. I'm not a big fan of asking any regulator for guidance (more often than not, the sought-out help becomes a full-fledged inquisition), but since there are few situations where a suspended individual should even set foot on the premises of a b/d, this may be the exception that tests the rule.

NOTE: Offers of Settlement (OS) and Letters of Acceptance, Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions and to the entry of findings.

Writer's BIO: Bill Singer is a practicing regulatory lawyer and the publisher of RRBDLAW.com