Disciplinary Proceeding - finra

This Decision has been published by the NASD Office of Hearing Officers and should be cited asOHO Redacted Decision CAF030014.E. The Alleged Profit-Sharing PaymentsEnforcement reviewed 9,621 agency trades placed by 1,364 customers at the Firmbetween October 1, 1999, and March 31, 2000. From this review, Enforcement determined that695 of the trades fell within the metrics it had formulated for this case and were, therefore,profit-sharing payments. Their classification as profit-sharing payments was not dependent upona finding that the Firm allocated IPO shares to the paying customers. Enforcement listed the 695trades on Amended Schedule A (“Schedule A-35”), 133 which Enforcement filed with its responseto [Respondent’s] Motion for a More Definite Statement. 134 The transactions sometimes arereferred to as the “Schedule A-35 trades.” 135The Firm earned total gross commissions of $4,133,013 on the Schedule A-35 trades,which equaled more than one-third of the Firm’s total agency commissions during the reviewperiod. 136 The weighted average of the commissions on the transactions is approximately 1% ofthe principal amount of the trades. 137Most of the Schedule A-35 trades fell into the first category of inflated rate commissionpayments—20 cents or more on transactions of 10,000 shares or more (“Type 1 Trades”), Ozag’soriginal criterion. Enforcement presented additional evidence, however, regarding two of theremaining categories Campbell formulated: non-economic cross or wash trades (“Type 2Trades”) and IPO flips (“Type 4 Trades”). Because these categories present distinct issues, thePanel discusses them in further detail below.133 CX 8.134 JX 14 14 (Joint Stipulations).135 JX 14 14 (Joint Stipulations). Exhibit CX 9 breaks out all of the agency trades by customer. Tr. 197:8-10(Ozag).136 Tr. 247:6-11 (Ozag).137 JX 14 22 (Joint Stipulations).30