A Michigan broker is in trouble with NASDR for allegedly "selling away" from his firm. Although his lawyer won't identify him, the case involves a broker who referred a customer to his wife--who is a broker at another firm, according to the husband's attorney, Walter Baumgardner Jr. of St. Clair Shores, Mich.
The problem, according to the NASDR, was that the wife deposited the commission she got on a $28,000 trade into a joint checking account she shared with her husband. The husband didn't do the trade because the investment, a tax-credit partnership from City-Equity Group, was not approved by his firm.
The trouble began when Citi-Equity, a Los Angeles firm that has raised more than $80 million to build low- and moderate-income housing, turned out to be a fraud and its principal, Gary Lefkowitz, was convicted and sentenced to 293 months in jail.
The clients, who lost most of the $28,000 they invested with Citi-Equity, sued Baumgardner's client in court and complained to the NASD. The NASDR now claims the husband/broker "sold away" from his firm because the commission was deposited into the joint checking account. The regulator wants to ban the broker for life from the securities industry, Baumgardner says.
The man's wife, meanwhile, has given up her license, Baumgardner claims.
A ruling from the NASD's district business conduct committee in Chicago was expected around press time in November, but had not yet been released. The ruling could have wide-ranging implications.
"It must be the position of the NASD that any broker who puts money into a joint checking account with a wife [or husband] is splitting commissions with a non-registered person," Baumgardner cracks.
Seriously, Baumgardner says independent brokers who share office space and expenses, or refer clients to one another, also could be accused of selling away.
"I'm amused by the position of the NASD, but at the same time it's very serious," Baumgardner says.
Arthur Don, a Chicago securities lawyer, said he thinks the NASDR views the case as one in which the broker got around the fact that his firm didn't sell the Citi-Equity partnership, and directed the trade to his wife.
"I think the NASD wouldn't have pushed if [the couple] had an existing relationship with the wife," Don says. "But here they have a relationship with a broker who can't sell it." The wisest thing, Don says, would have been to direct the trade to another broker.
The NASDR declined to comment on the case.