On August 25, 2009, the National Adjudicatory Council (“NAC”), the national committee that reviews initial decisions rendered in FINRA disciplinary matters, reviewed a matter in which a Hearing Panel found that the respondent approved the falsification of IRA adoption agreements , in violation of NASD Rule 2110. Rule 2110 requires that member firms observe high standards of commercial honor and just and equitable principles of trade.
In determining his sanction, the Hearing Panel had concluded that misconduct was serious, not egregious. In reaching this conclusion, the Hearing Panel emphasized that the concealment of the falsification was attributable to several firm officers, that the respondents misconduct was negligent, not reckless or intentional, and that the nature of the documents supported lower sanctions.
On appeal, the NAC reversed this finding.
First, the NAC found that the FINRA Sanction Guidelines (“Guidelines”) for the forgery and falsification of documents were applicable to the alleged misconduct and that the Guidelines for the forgery and falsification of records recommend a fine of $5,000 to $l00,000. The Guidelines also recommend that the adjudicator consider a suspension in any and all capacities for up to two years, when mitigating factors exist. In egregious cases, the Guidelines recommend considering a bar. The specific principal considerations to determine sanctions for this violation are “the nature of the documents forged or falsified, and whether the respondent had a good-faith, but mistaken, belief of express or implied authority.”
Second, with these principals in mind, the NAC stated:
Based on [his] entire course of conduct, we conclude that his violation was egregious. Although [his] stand alone approval of the falsification may not have risen to the level of egregious misconduct, his attempted concealment of the misconduct, coupled with his outright disregard of the compliance officer’s advice, push his actions into what is egregious under the circumstances presented. Accordingly, we increase the duration of [his] suspension as a principal from six months to one year.
In the Matter of Dep’t. of Enforcement v. Vines, Complaint No. 2006005565401 (NAC Aug. 25, 2009).