He wore many hats at America First Associates:  (i) general securities representative;  (ii) general securities principal;  (iii) FinOp principal;  (iv) limited representative-equity trader;  (v) CEO;  (vi) CCO;  and, (vii) sole director of a former FINRA member firm.  He also was sanctioned for failing to respond to requests for information, for failing to file 3 FOCUS reports, for failing to file 1 annual audit report, and for failing to file an application for approval to transfer the member's assets. 

For violating NASD Procedural Rule 8210, Investigations: Provision of Information and Testimony and Inspection and Copying of Books, Joseph Ricupero was barred from associating with any NASD member firm in all capacities.  NASD declined to impose a sanction for the remaining violations.  The SEC independently reviewed the case and upheld NASD's findings of violations and sanction imposed.

    What Went Wrong.   In 1995, Ricupero founded America First, an introducing B/D, and owned more than 75% of the Firm.  On 2/9/06, he sold the Firm's customer accounts, then terminated his NASD registration in December 2006.  In between - March 2006 - an NASD staff examiner reviewed the Firm's FOCUS reports and questioned the accuracy of 2 reports the Firm had filed for the months ending January and February 2006.  Both reports contained identical dollar amounts of securities holdings.  The examiner testified at the hearing that the identical amounts were "highly unusual" given that the Firm's previously filed FOCUS reports contained slightly different amounts. She also testified that she was concerned about the  information in the two reports because they were identical in all other respects, except that the February 2006 FOCUS report included $25,000 in "cash and earnings."

On 4/10/06, examiner requested Ricupero to provide by 4/12 "a copy of the Firm's proprietary statements that correspond to the Firm's reporting of $345,520" worth of securities holdings in the February 2006 FOCUS report, and copies of the Firm's trial balances for the months of January and February 2006. A 2nd letter was sent and Ricupero responding in writing, saying that he could not meet the deadline because he had scheduled a vacation for a religious holiday, but would "fulfill [NASD's] request" by 5/1/06.  At the hearing, however, Ricupero testified that he failed to timely respond to WoodSelem's first request because the responsive documents were not "readily available" and "were all boxed up" in a "storage area."

On 4/27, NASD staff attempted to visit Ricupero at the Firm, but "it looked like the Firm had been "abandoned."  A 3rd was sent by NASD on 6/13 asking for the previously requested financial information.  The examiner reviewed other compliance matters regarding the Firm, at whichtime she discovered that Ricupero had not filed: (1) the Firm's March, April, and May 2006 FOCUS reports, (2) the Firm's annual audit report for the year ending 12/31/05, and (3) an application requesting that NASD approve the Firm's 2/9/06 sale of its customer accounts to a NYSE member firm.

    NASD Complaint Is Filed.   On 6/20/07, a complaint was filed against Ricupero re: the conduct at issue in this proceeding;  a hearing was scheduled for December 2007.   In November 2007, Ricupero produced 41 pages of the Firm's February 2006 bank statements and clearing account statements and the Firm's January and February 2006 trial balances.  In December 2007, a few days before the hearing, Ricupero produced a letter that he claimed he had sent to NASD on 5/1/06.  The 3-sentence letter addressed to "NASD Compliance" stated that "documents pertaining to the Focus Filing P/E 2/28/2006" are attached.  The attachment contained 7 of the 41 pages that Ricupero produced in November 2007.

    The Appeal.   Ricupero appealed the Hearing Panel's decision to NASD's National Adjudicatory Council ("NAC") - which found that the record supported the Hearing Panel's determination not to credit Ricupero's testimony.  NAC concluded that Ricupero's claim of having sent the 5/1/06 Letter was "untrue and constitute[d] a deliberate attempt to mislead."  NAC also found that Ricupero's disciplinary history was an aggravating factor and "demonstrates a pattern of disregard for regulatory requirements." 

In 1999 and 2000, Ricupero consented to findings involving violations of free-riding and withholding provisions, as well as net capital violations and failure to provide prompt written notice re: 3 principals' departure from the Firm, respectively.  In 2008, NASD found that Ricupero failed to timely amend his Form U-4 to disclose a federal court action filed against him alleging that he committed common-law fraud and violated federal securities laws, and that he and the Firm executed 2 settlement agreements with proper confidentiality provisions.  NAC affirmed the Hearing Panel's findings of violation and sanction imposed. An appeal to the SEC followed.

    Appeal to SEC.   Ricupero claimed the bar imposed by NASD is punitive and not remedial.  But, the SEC panel stressed the importance of Rule 8210 in connection with NASD's "obligation to police the activities of its members and associated persons."  Without subpoena power, NASD must rely on Rule 8210 to obtain information from its members necessary to carry out its investigations and fulfill its regulatory mandate.  A failure to comply with Rule 8210 is a serious violation because it subverts NASD's ability to execute its regulatory responsibilities.  To impose a bar as the standard sanction for a complete failure to respond to NASD information requests "reflects the judgment that, in the absence of mitigating factors, a complete failure to cooperate with NASD requests for information or testimony is so fundamentally incompatible with NASD's self-regulatory function that the risk to the markets and investors posed by such misconduct is properly remedied by a bar."

NASD determined that there were no mitigating factors that would warrant a lesser sanction.  Ricupero argues that we should consider the fact that his Firm "was winding down in the midst of Enforcement's requests for documentation" as a mitigating factor that warrants a lesser sanction, such as a suspension. Ricupero did not, however, raise with NASD the purported difficulties in obtaining documents resulting from the Firm's closure at any point during NASD's efforts to acquire information.  Instead, he stated in a letter dated 4/17/06 that he was unable to meet the examiner's original deadline due to his vacation and religious holiday plans.  Whatever difficulty Ricupero faced in responding to the examiner's deadlines, he should have "raised, discussed, and resolved [it] with the NASD staff in the cooperative spirit and prompt manner contemplated by the Rules."

    Take Away.   Ricupero asserted that the suspensions imposed in CMG Institutional Trading, LLC, Morton Bruce Erenstein, and Perpetual Securities, Inc. demonstrate "that where a party responds to an 8210 request even after a complaint is filed, a party should not be barred from the industry."  In each of those cases, the applicants had provided some information responsive to NASD's Rule 8210 requests before NASD filed a complaint.  Accordingly, NASD found that the applicants violated Rule 8210 by failing to provide complete and/or timely responses to requests for information. NASD imposed sanctions consistent with the Sanction Guidelines, which recommend a suspension when the applicant did not respond in timely manner. In contrast, Ricupero provided no information before NASD filed its complaint and therefore failed to respond in any manner. Such conduct warrants a bar in the absence of mitigating factors.

For further details, click onto:   [ SEC '34Act Release 62891, 9/10 ]