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I. Activity Away From Associated Person's Member Firm [Version up to Mar. 22, 2011]

Outside Business Activities—Failure to Comply With Rule Requirements

FINRA Rules 2010 and 3270

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether the outside activity involved customers of the firm.
2. Whether the outside activity resulted directly or indirectly in injury to customers of the firm and, if so, the nature and extent of the injury.
3. The duration of the outside activity, the number of customers and the dollar volume of sales.
4. Whether the respondent's marketing and sale of the product or service could have created the impression that the employer (member firm) had approved the product or service.
5. Whether the respondent misled his or her employer member firm about the existence of the outside activity or otherwise concealed the activity from the firm.
Fine of $2,500 to $50,000.1 When the outside business activities do not involve aggravating conduct, consider suspending the respondent for up to 30 business days.

When the outside business activities involve aggravating conduct, consider a longer suspension of up to one year.

In egregious cases, including those involving a substantial volume of activity or significant injury to customers of the firm, consider a longer suspension or a bar.

1 As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.


Selling Away (Private Securities Transactions) (continued)

FINRA Rule 2010 and NASD Rule 3040

Principal Considerations in Determining Sanctions1 Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. The dollar volume of sales.
2. The number of customers.
3. The length of time over which the selling away activity occurred.
4. Whether the product sold away has been found to involve a violation of federal or state securities laws or federal, state or SRO rules.
5. Whether the respondent had a proprietary or beneficial interest in, or was otherwise affiliated with, the selling enterprise or issuer and, if so, whether respondent disclosed this information to his or her customers.
6. Whether respondent attempted to create the impression that his or her employer (member firm) sanctioned the activity, for example, by using the employer's premises, facilities, name and/or goodwill for the selling away activity or by selling a product similar to the products that the employer (member firm) sells.
7. Whether the respondent's selling away activity resulted, either directly or indirectly, in injury to the investing public and, if so, the nature and extent of the injury.
8. Whether the respondent sold away to customers of his or her employer (member firm).
9. Whether the respondent provided his or her employer firm with verbal notice of the details of the proposed transaction and, if so, the firm's verbal or written response, if any.
10. Whether the respondent sold away after being instructed by his or her firm not to sell the type of the product involved or to discontinue selling the specific product involved in the case.
11. Whether the respondent participated in the sale by referring customers or selling the product directly to customers.
12. Whether the respondent recruited other registered individuals to sell the product.
13. Whether the respondent misled his or her employer (member firm) about the existence of the selling away activity or otherwise concealed the selling away activity from the firm.
Associated Person

Fine of $5,000 to $50,000.1

Member Firm

Where member firm receives written notice of a private securities transaction, but fails to provide written notice of approval, disapproval or acknowledgement, fine of
$2,500 to $10,000.2
Associated Person

The first step in determining sanctions is to assess the extent of the selling away, including the dollar amount of sales, the number of customers and the length of time over which the selling away occurred. Adjudicators should consider the following range of sanctions based on the dollar amount of sales:
•   Up to $100,000 in sales: 10 business days to 3 months
•   $100,000 to $500,000: 3 to 6 months
•   $500,000 to $1,000,000: 6 to 12 months
•   Over 1,000,000: 12 months to a bar
Following this assessment, Adjudicators should consider other factors as described in the Principal Considerations for this Guideline and the General Principles applicable to all Guidelines. The presence of one or more mitigating or aggravating factors may either raise or lower the above-described sanctions.

Member Firm

Where member firm receives written notice of a private securities transaction, but fails to provide written notice of approval, disapproval or acknowledgement, consider suspending responsible supervisory personnel in any or all capacities for up to two years.

1 As provided for in General Principle No. 6, Adjudicators should increase the recommended fine amount by adding the amount of a respondent's financial benefit.

2 If the allegations involve a member's failure to supervise the selling away activity, then Adjudicators should also consider the Supervision—Failure to Supervise guideline.


Transactions for or by Associated Persons—Failure to Comply With Rule Requirements

FINRA Rule 2010 and NASD Rule 30501

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether violative transactions presented real or perceived conflicts of interest for the employer firm and/or customers.
2. Whether violative transaction(s) involved violations of the Restrictions on the Purchase and Sale of Initial Public Offerings (FINRA Rule 5130).
3. Whether the respondent provided verbal notice of the violative transactions to the employer member and/or executing member, and whether the employer member verbally acquiesced.
Associated Person

Fine of $1,000 to $25,000.

Executing Member Firm

Fine of $2,500 to $50,000.
Associated Person

In egregious cases, consider suspending the associated person in any or all capacities for up to two years or barring the associated person.

Executing Member Firm

In egregious cases, consider suspending the firm with respect to any or all activities or functions for up to two years. Also consider suspending the responsible individual at the executing firm in any or all capacities for up to two years or barring the responsible individual.

1 This guideline also is appropriate for violations of MSRB Rule G-28.


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