Department of Market Regulation v. Yankee Financial Group, Inc.
National Association of Securities Dealers National Adjudicatory Council
No. CMS030182, 2006 NASD Discip. LEXIS 21 (2006)
- Written by Sharon Feldman, JD
Facts
Yankee Financial Group, Inc. (Yankee) (defendant) was a registered broker-dealer with one office and a dozen representatives who sold bonds and mutual funds. Richard Kresge (defendant) was Yankee’s 95 percent owner; president; and compliance, financial, and operational principal. Yankee purchased another firm’s Melville office with 50 representatives who sold bonds, mutual funds, listed equities, and penny stocks. Kresge taped “Yankee” to Melville’s existing supervisory-procedures manual. Yankee opened a Brooklyn office with another firm’s disgruntled representatives. The representatives’ spokesperson, Joseph Ferragamo, resisted registration. Kresge never learned that Ferragamo was never registered as a general securities representative or principal and was named in two customer arbitrations. Kresge never contacted previous employers nor learned that representatives had worked for disciplined firms and moved numerous times. Upon Ferragamo’s recommendation, Kresge hired Gary Giordano as Brooklyn’s manager. Kresge never learned that Giordano had been employed by five firms over four years and only recently passed his principal-qualification examinations. Kresge did not give Giordano a compliance manual or designate Brooklyn an office of supervisory jurisdiction. Kresge had Kenneth Gliwa, a Melville manager, supervise Giordano. Kresge knew Gliwa visited Brooklyn just two or three times, did not regularly review trades or accounts, and was an incompetent supervisor. Kresge rarely visited Brooklyn; he did not review files, speak to brokers, know whether representatives had received suitability or sales-practice training, or immediately implement supervisory procedures for employees with customer complaints. Brooklyn representatives sold speculative over-the-counter securities without disclosing the risks, falsely touted issuers’ prospects, used boiler-room tactics, and ignored suitability. The National Association of Securities Dealers (NASD) Department of Market Regulation (plaintiff) filed a complaint. Yankee and Kresge were found liable for representatives’ sales-practice and suitability violations and failure to supervise and establish a reasonable system of supervision. Yankee and Kresge appealed.
Rule of Law
Issue
Holding and Reasoning ()
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