MSRB Rule G-37 requires all dealers to disclose certain political contributions, as well as other information, to allow public scrutiny of political contributions and the municipal securities business of a dealer. Dealers are to disclose, with some limited exceptions, contributions to state and city officials with responsibility for issuing municipal debt and payments to political parties made by the dealer and certain persons employed by the dealer. Contributions to these officials by firms or their municipal finance professionals trigger a two-year prohibition on most future municipal business. NASD is responsible for enforcing the rules of the Municipal Securities Rulemaking Board (MSRB).
NASD found that Brown made three political contributions to Illinois Governor Rod Blagojevich. The first two were made during then-Congressman Blagojevich's gubernatorial campaign in 2002. Brown made another contribution to Blagojevich in July 2003, following Blagojevich's election as governor. The total amount of the contributions was $12,000. Brown also made a $2,500 political contribution to Joan Pratt, Comptroller of the City of Baltimore in August 2003. None of these contributions was disclosed until after NASD discovered them and instructed the firm to report them.
Berean Capital also violated MSRB Rule G-37 by engaging in a municipal securities business with an issuer within the two-year prohibited period after a political contribution to an issuer official. In this instance, a $500 contribution was made by one of the firm's municipal finance professionals to Darlene Green, Comptroller for the City of St. Louis and head of the Department of Finance that directs the city's debt financing. Approximately 21 months later, Berean Capital entered into municipal securities business with the City of St. Louis that involved purchasing $50 million of the city's Tax and Revenue Anticipation Notes in June 2003, as lead underwriter in a negotiated offering.
NASD found other MSRB reporting and disclosure failures by Berean Capital. The firm failed to disclose its participation in a City of Chicago-negotiated municipal underwriting for the quarter ended Sept. 30, 2002. When an amended MSRB Form G-37/38 was filed disclosing the underwriting, the form was filed 78 days late. In addition, Berean Capital failed to include the time of execution on order memoranda for inter-dealer municipal securities transactions, as required by MSRB Rule G-8.
NASD also found violations by Berean Capital relating to its general securities business. Specifically, the firm violated NASD's research analyst rule by publishing 20 research reports between February 2003 and February 2004 that failed to include numerous required disclosures. For example, the research reports failed to include the meaning and distribution of ratings, current information of the firm's distribution of ratings, valuation methods used to determine price targets, and statements that the firm was a market maker of companies that were the subject of the published research. The firm also failed to present its disclosures prominently, as required by Rule 2711.
In settling this matter, Berean Capital and Dudley Brown, Jr. 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 2004, members of the public used this service to conduct more than 3.8 million searches for existing brokers or firms and requested more than 190,000 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 2005 National Association of Securities Dealers, Inc.")
