Some relatively recent disciplinary panel decisions have popped up on FINRA's website, and two caught my eye.
In one case (2006005565401) a principal at a firm was sanctioned "for approving the falsification of records" in violation of NASD Conduct Rule 2110. The Hearing Panel sanctioned the principal with a 30 day suspension in all capacities, a six month principal capacities suspension, fine of $10,000 and an order that he take an ethics course.
The violation was not contested, but the hearing apparently was to determine sanctions. The principal conceded that he approved an employee's suggestion to copy customer signatures on outdated new account forms onto the revised, current version of the firm, rather than to contact the customers and obtain genuine signatures on the new documents. The forms had been revised by the clearing firm to provide better disclosure regarding the pre-dispute arbitration agreement. When old firms were rejected by the clearing firm, and with the principal's approval, operations staff cut and pasted the clients' signatures (about 60 of them) onto new firms and submitted them to the clearing firm!
The Decision notes that the firm did not notify clients to obtain their signatures until after being contacted by the regulators. The panel found that concealing the conduct was an aggravating factor, though they also found that the conduct was negligent and not reckless or intentional. They described the principal's misconduct as a result of a hastily made decision while he was preoccupied with other work.
It appears that principal won, at least with respect to the sanction war. According to the Decision, Enforcement sought to have the principal suspended in all capacities for one year, suspended in principal capacities for 18 months, and fined at least $25,000. The sanctions imposed by the panel were significantly less than Enforcement's requested sanctions. Another case of the "litigation discount" that I've posted about a few times - where you just may be better off fighting unreasonable sanction demands by Enforcement.
In another case (20070077587), a broker was barred from the industry after a hearing panel found that he converted firm funds and falsified expense reports submitted to the firm. The case is an interesting read as its not the standard conversion case, but it also noted that the respondent claimed, as an affirmative defense, that his alleged misconduct was the result of psychological disorders and was not committed intentionally. This is the first time I've seen a case where Enforcement retained a forensic psychiatrist to provide evidence such as an assessment of the broker's mental state at the time of the alleged misconduct, and to opine on the broker's psychologist's report that was apparently presented as evidence.