Also as part of the action announced today, NASD ordered LaSalle Street to retain an independent consultant to establish adequate supervisory systems and procedures, and suspended the firm from hiring brokers with any disciplinary history until such time as the firm has implemented appropriate supervisory systems.
In related actions, NASD has barred Devine from the securities industry for life for operating fraudulent investment schemes, converting funds and failing to respond to requests for information. It has also barred the LaSalle principal assigned to supervise Devine, Gerald Martin, from serving in any supervisory or principal capacity with any NASD-registered firm. In addition, NASD suspended Martin in all capacities for 90 days and fined him $5,000.
"Devine's misconduct escaped detection in large part because of the firm's deficient supervisory system and procedures," said James Shorris, NASD Executive Vice President and Head of Enforcement. "NASD rules require firms to establish systems and procedures to reasonably supervise brokers, to ensure compliance with securities laws and regulations. And regulators have repeatedly emphasized the need for heightened supervision of brokers with known regulatory problems or customer complaints. But LaSalle Street had no significant supervisory procedures in those areas and never took any steps to meaningfully supervise Devine - and Devine was able to exploit those deficiencies to carry out his fraudulent schemes."
NASD found that in June 1998, when LaSalle Street hired Devine, he disclosed to the firm that the NASD was investigating his termination by his previous firm for engaging in unauthorized and undisclosed outside business activities. In September 1998, Devine received formal written notification from NASD that it intended to pursue disciplinary action against him. Despite being aware of the NASD investigation, and knowing that Devine maintained a separate business account and operated various outside businesses, LaSalle Street allowed Devine to work from his home with no on-site supervision.
Following a hearing and several appeals - including to the Securities and Exchange Commission, which took its final action in December 2002 - Devine was found to have sold viatical contracts without the knowledge of, or authorization from, his previous employing firm. He was suspended for 90 days, fined $34,825 and required to requalify by examination before he could associate with an NASD-registered firm. Devine served his suspension in early 2003, and then reassociated with LaSalle Street where he continued to work until September 2004. During the entire six-year period that Devine was employed with LaSalle Street, the firm allowed him to work from his home, did not place him under any form of heightened supervision and did not conduct a single inspection of his office. LaSalle Street also failed to properly investigate red flags indicating possible misconduct by Devine. Devine made inconsistent disclosures to the firm about his outside business activities and his separate business account beginning in 1999, which the firm failed to follow up on. Further, Devine's production declined precipitously in 2003 and 2004, when his annual compensation from LaSalle Street plummeted from six figures to under $1,000. When questioned by the firm, Devine told LaSalle Street that he was being paid "very, very well" as a political consultant, but that he could not provide details because he was working for the U.S. Government. LaSalle Street did not investigate further.
NASD found that while LaSalle Street employed Devine, he operated several fraudulent schemes including one involving the purchase and resale of luxury automobiles, one involving the sale of real estate and another involving an initial public offering. Devine converted the funds he collected from friends, acquaintances and others to his own personal use. None of these schemes was approved by LaSalle Street or known by the firm. Devine's supervisor, Martin, invested approximately $80,000 in two of Devine's schemes, but did not inform the firm of his investment and did not determine whether any LaSalle Street customers serviced by Devine had also invested.
In addition to its failure to reasonably supervise Devine, NASD also found that LaSalle Street failed to establish an adequate supervisory system and procedures for supervising activities of brokers working in small, geographically dispersed offices, including brokers with disciplinary histories. Other than having a "goal" of inspecting each non-branch office location once every three years, LaSalle Street did not have procedures for supervising brokers like Devine, who were working in remote office locations. Further, LaSalle Street did not provide supervisors with any formal instruction or training, and there was no supervisory manual or supervisory procedures for managers to follow.
In settling these matters, LaSalle Street, Devine and Martin have neither admitted nor denied the charges, but consented to the entry of NASD's findings.
Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2005, members of the public used this service to conduct more than 4.3 million searches for existing brokers or firms and requested more than 194,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com. Investors can also access this service by calling (800) 289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web site at www.nasd.com.
("Copyright 2006 National Association of Securities Dealers, Inc.")
