The National Association of Securities Dealers (NASD) fined and censured David Lerner Associates
, a Long Island-based brokerage firm, for violating NASD rules in sales contests.
In the contests, the firm awarded prizes to broker-dealer representatives for giving preferential treatment to or only selling the firmís own, proprietary mutual funds or variable annuity products. The firm ran six sales contests from September 2000 to March 2003, awarding prizes such as consumer electronics and trips to the Bahamas and Puerto Rico. The estimated value of prizes totaled $700,000.
The funds given preferential or exclusive treatment in the contest were David Lernerís Spirit of America REIT fund and Spirit of America Value fund.
Americaís Future Annuity, Nationwide Mutual Insurance Co., Provident Life & Accident Insurance Co. were other products sold in the contests. The charges pertain only to David Lerner, stated John Batterman
, NASD's regional counsel of New York and Long Island.
The NASD uncovered the violations in a routine examination of the firm. The frequency of audits vary from firm to firm, said Batterman.
"Our rules are designed to prevent the conflicts of interest that arise when brokers are encouraged to recommend investments based on lucrative awards paid by their employers, rather than on the merits of the investments and the needs of their customers" said Mary L. Schapiro
, NASDís vice chairman and president of regulatory policy and oversight.
The firmís vice president of compliance, Daniel E. Chafetz
and vice president of sales, John Dempsey, Sr.
were also each fined $10,000 for failure to supervise and prevent the violations.
The NASDís release stated that the firm, Chafetz and Dempsey neither admitted nor denied the charges in the settlement.
NASD's BrokerCheck, a database containing information on broker-dealers, turned up nine regulatory actions, one civil judicial action, and 30 arbitrations in the firm's record.
The NASD also fined Morgan Stanley
$2 million in September 2003 and Wells Fargo
$150,000 in October 2003 for sales contests or rewarding sales representatives in violation of NASD rules.
, chief counsel of the New York region, stated that the three cases have heightened industry awareness about improper contests and that the NASD will continue to review the practices.
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