Broker-Dealer Litigation - Greenberg Traurig LLP

Department of Enforcement v. Thomas Weisel Partners, LLC, Disciplinary Proceeding No.
2008014621701, 2011 NASD Discip. LEXIS 59 (OHO, Nov. 8, 2011).
FINRA’s Department of Enforcement alleged that the firm and a registered representative
who worked on the firm’s Fixed Income Desk violated Section 10(b) of the Exchange Act and
Rule 10b-5 thereunder, as well as NASD Conduct Rules 2120 and 2110, by “stuffing” auction
rate securities from the account of the firm’s corporate parent into the accounts of three of its
customers, prior to the freezing of the market for auction rate securities in 2008. The complaint
also included allegations that respondents provided false and misleading information to
customers in connection with attempting to secure their retroactive consent, and that respondents
provided false information to FINRA during the investigation in violation of Rule 8210.
Relevant to this summary, FINRA also alleged that the firm violated Conduct Rules 3010 and
2110 by failing to establish and maintain supervisory systems and procedures surrounding
principal transactions executed by the firm.
After a hearing, the hearing panel concluded that respondents did not commit the
“stuffing,” false information, to customers, or Rule 8210 violations. The panel did conclude,
however, that firm’s Fixed Income Desk procedures governing principal transactions were
inadequate. The firm did not believe that the Fixed Income Desk handled any principal
accounts, and therefore the procedures lacked those applicable provisions, including the
requirement for prior notice to and consent from customers. Such supervisory failures were
found to violate NASD Rules 3010 and 2110, and as a result, the firm was fined $200,000, plus
hearing costs.
Department of Enforcement v. Max International Broker-Dealer Corp., Disciplinary Proceeding
No. 20070072538-03, 2011 FINRA Discip. LEXIS 58 (OHO, Sept. 1, 2011).
FINRA charged respondent with charging fraudulent, excessive, undisclosed markups on
penny stock sales to more than 100 customers, in violation of Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder, and NASD Conduct Rules 2110, 2120, and 2440. In addition to
trade reporting and books and records violations stemming from such conduct, the firm was also
charged with certain supervisory violations. Specifically, the Department alleged that
respondent failed to enforce its written supervisory procedures, in violation of NASD Conduct
Rules 2110 and 3010, failed to maintain and enforce supervisory control procedures, in violation
of NASD Conduct Rules 2110 and 3012, and failed to timely update its Form BD and file a
required annual certification, in violation of NASD Conduct Rules 2110 and 3013.
The hearing panel concluded that the firm failed to maintain and enforce its written
supervisory control procedures regarding markups and proprietary customer trades. While the
procedures contained references to supervision of proprietary trading, prohibitions against
principal trades with customer, and cautions against mark-ups in excess of five percent, the
procedures were not applied or enforced. The panel also concluded that the firm failed to
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