Disciplinary Proceeding - finra

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This Decision has been published by the NASD Office of Hearing Officers and should be cited asOHO Redacted Decision CAF030014.3. Customer AffidavitsIn addition, the Firm submitted seven customer affidavits that deny the existence of anytie-in arrangements, quid pro quos, kickbacks, or discussions about linkages betweencommissions and IPO allocations. 175 Enforcement introduced no evidence to contradict theseaffidavits.4. Customer Counsel LettersThe record also includes several exhibits containing various letters to Enforcement fromlawyers representing 14 customers. These exhibits show that these customers offered to confirmin interviews or affidavits that they had not engaged in profit sharing. 1765. Hearing TestimonyThree Firm customers—EB, JD, and SD—testified in person. Enforcement claims thattwo of them, EB and JD, shared profits with the Firm. 177 Both denied the charge.EB, who paid the most total commission dollars of all the other customers on ScheduleA-35, 178 consistently paid 60 cents per share on all his trades 179 although he paid other firms farless. He testified that he paid the Firm 60 cents per share because he valued KL’s advice. 180 In hiswords, KL “either saved me money or made me money.” 181 EB did not vary the rate dependingon the availability of IPOs, and he continues to pay 60 cents per share on all of his trades.175 RX 133-139.176 RX 116-123.177 The third customer, SD, did not purchase IPO shares from the Firm.178 See RX 312.179 JX 14 51 (Joint Stipulations).180 Tr. 4213:22–4214:3; 4236:7-15 (EB).181 Tr. 4218:5-8 (EB).38
This Decision has been published by the NASD Office of Hearing Officers and should be cited asOHO Redacted Decision CAF030014.When questioned about his motive in paying such a high rate, EB denied the existence ofany profit sharing, payback, tie-in, or quid pro quo. In addition, he stated that he had noconversations with the Firm about any of those subjects. 182As discussed above, 183 JD likewise denied sharing profits with the Firm. 184 As was thecase with other Firm customers, JD paid higher commissions to ensure access to the services theFirm provided him. Aside from access to IPOs, these included the investment advice he receivedfrom CJ, his broker, whom JD considered to be a uniquely valuable resource. The Panel creditsEB’s testimony and finds that the Firm did not share in the profits of his account.6. On-The-Record Interview TestimonyEnforcement took on-the-record testimony from several customers during theinvestigation; each denied sharing profits with the firm. 185 Of those, LM’s testimony isparticularly significant because Enforcement pointed to him as the customer who most supportedEnforcement’s profit-sharing theory. The Panel finds otherwise. LM’s on-the-record interviewtestimony actually undercuts Enforcement’s theory. 186LM is an unregistered professional investor who speculates in new issues for his ownaccount. 187 He disclaimed being an “investor,” by which he meant that he did not purchase stockto hold for the long term. 188 His business plan was to concentrate on IPOs. Thus, to maximize his182 Tr. 4215:9–4216:17 (EB).183 See Part III.E.2 at p. 30.184 See discussion infra Part III.E.2.185 Tr. 355:16–356:2 (Ozag).186 LM refused to testify at the hearing because he thought that Enforcement had mischaracterized his on-the-recordinterview testimony. See RX 240 at 10536-37 (LM Aff.).187 CX 38 at 22-23.188 Id. at 72.39
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