Registered principals, reps and associated persons misbehave in all sorts of ways - some imaginative, others repetitive or run-of-the-mill.  FINRA issued its latest quarterly warning on 8 such cases.  For further details, go to:  [FINRA Quarterly Disc. Review, January 2011] 

     1.  Causing Inaccurate Firm Records.  By inaccurately representing that 42 variable universal life sales were not replacement transactions when, in fact, they were, an RR violated NASD Rules 2110 (ethical standards) and 3110 (books and records).

    2.  Outside Business Activities ("OBA's).  Over several years, an RR failed to disclose OBA's or that he owned 2 construction companies and acted as a director of an insurance company.  He also failed to disclose this information on annual compliance questionnaires, and in response to FINRA RFI's.  , outside outside inaccurately represented that 42 variable universal life sales were not replacement transactions when, in fact, they were.  These actions violated NASD Rule 2110 (ethical standards) for conduct before 12/15/08, and NASD Rule 3030 (OBA's) and FINRA Rule 2010 (ethical standards) for the period after 12/14/08.

    3.  Failure to Disclose Material Information on Multiple Forms U4.  An RR failed to amend his Form U4, or did so after much delay, for 3 material events:  (i) in August, he was named in a civil litigation;  (ii) in May 2005, a default judgment for $286K was entered against him;  (iii) in October 2005, a 2nd default judgment was entered against him.  His failures violated NASD Rule 2110 (ethical standards) and IM-1000-1 (misleading registration information).

    4.  Requesting and Receiving Continuing Education Answer Keys.  An RR requested and received CE answer keys on 2 occasions.  The RR then went out and marketed a universal life insurance policy with long-term care benefits to financial advisors, who then sold the product to customers.  This violated NASD Rule 2110 (ethical standards).

    5.  Private Securities Transactions and Borrowing From Customers.  On numerous occasions, an RR borrowed funds from customers, which violated firm pols and procedures, as well as NASD Rules 2370 (borrowing from/lending to customers) and 2110 (ethical standards) - though he subsequently repaid the loans in full.  He further violated NASD Rules 3040 (private securities transactions) and 2110 (ethical standards), when he repaid a $50K loan by transferring to the customer a membership interest in an LLC formed to invest in real estate projects.

    6.  Engaging in Private Securities Transactions Without Firm Approval.  An RR sold universal lease programs in resort properties in other countries - i.e., time-shares - without notifying his employer, thus violating NASD Rules 2110 (ethical standards) and 3040 (private securities transactions).

    7.  Misappropriating Firm Funds, and Creating and Submitting False Expense Reimbursement Reports.  An RR charged personal expenses to a firm credit card over a 4-year period, and submitted false expense reports.  The RR thus violated NASD Rule 2110 (for misappropriation) and violated NASD Rules 3110 (books and records) and 2110 (ethical standards) by submitting false expense reports.

    8.  Improperly Using Customer Funds.  An unregistered associated person used a customer's bank account information to pay a personal phone bill, thus violating NASD Rule 2330§ (customer securities or funds) and FINRA Rule 2010 (ethical standards).