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91-16 New Statutory Disqualification Categories; Notice to NASD Required No Later Than April 30, 1991
Congress has recently enacted legislation that expands the number of criminal or civil offenses that are considered statutory disqualifications under the securities laws. Any felony conviction, certain foreign convictions, and certain foreign securities and commodities violations are now statutory disqualifications. The NASD is asking members to identify persons with such violations from among their associated persons and provide the NASD with a list of them.
In November 1990, President Bush signed into law HR-1396 Securities Acts Amendments of 1990. In this legislation, the definition of a "statutory disqualification" in Sections 3(a)(39) and 15(b)(4) of the Securities Exchange Act of 1934 (the "Act") was expanded to include new domestic and foreign criminal and civil offenses. Such offenses include any felony conviction that occurred in the United States within the last 10 years, certain foreign convictions, and certain foreign securities and commodities violations.
The prior statutory disqualification provisions involving convictions did not distinguish between felony or misdemeanor convictions, but rather focused on particular types of misconduct. The new law now makes any domestic felony conviction, regardless of the underlying nature of the offense, a statutory disqualification. The enumerated crimes set forth in the prior law remain disqualifications. Such convictions are disqualifications for a 10-year period commencing on the day the conviction is entered.
It was unclear under the prior statutory disqualification provisions whether actions taken by foreign criminal or civil authorities against an entity or person would subject either of them to a statutory disqualification. The new law is designed so that, regardless of the identity of the court or regulatory authority involved, any foreign criminal or civil action that results in a conviction or sanction or finding described in Sections 3(a)(39) or 15(b)(4) of the Act, will cause such person or entity to be subject to a statutory disqualification.
Section 15A(g)(2) of the Act requires the NASD to make a filing with the Securities and Exchange Commission whenever it decides to approve or continue a statutorily disqualified person's association with an NASD member. The NASD therefore must conduct a proceeding to determine whether those persons, who were not disqualified prior to November 1990 but now as a result of the new law are disqualified, will be allowed to become or remain associated with a member.
Those "newly disqualified" persons who are currently associated with an NASD member will be allowed to continue working at that member pending the outcome of the NASD's proceeding. For those "newly disqualified" persons who attempt to transfer registration to another member, the NASD may in its discretion allow such person's association with the new employer-member on a temporary basis pending the outcome of the NASD's proceeding. Newly disqualified persons seeking admission or readmission to the securities industry for the first time since their disqualification will be considered in the same manner as those existing disqualified persons who are applying for the first time. Such persons are not allowed to conduct securities activities on behalf of the sponsoring member until the proper regulatory approvals have been received.
The NASD, in discharging its responsibility under Section 15A(g)(2) of the Act, is asking each member to review its list of associated persons and provide the NASD with the names, Central Registration Depository (CRD) numbers, or Social Security numbers of any of its associated persons who are subject to these new statutory disqualification provisions not later than April 30, 1991. This list should be sent to Ellen Badler, Assistant Director, Special Registration Review, NASD, 9513 Key West Avenue, Rockville, Maryland 20860. The NASD is also reviewing the registration records in the CRD system and will compare its list for each member to the lists submitted by the members.
Members should be aware that if a person has been convicted of a felony during the applicable 10-year period, the NASD requires that the member submit the indictment or information and the order of conviction and sentence as a part of the NASD review process. Members may also be required to submit these documents prior to the NASD granting registration so that the Association can determine whether a person is subject to a statutory disqualification.
Questions concerning this notice may be directed to Ellen Badler, Special Registration Review, at (301) 590-6743 or Craig L. Landauer, Office of General Counsel, at (202) 728-8291.