How Asensio Duped
Regulators
Asensio has proven himself to be no ordinary investment banker. From 1989 to
1993, he managed to hold on to his registration as a stockbroker, without
restriction, despite a quarter-million dollar jury verdict against him for
defrauding a client. Then, in 1993, he pulled off
an even more amazing feat. With the verdict still in force and apparently
unpaid, he convinced the NASD, SEC and New York Attorney
General to grant him broker-dealer status.
How did he do it? Here, at last, is the story.
In the Beginning
On
October 15, 1987, while working as senior vice-president at the Florida
brokerage of Steinberg & Lyman, Asensio was contacted by Norman Murphy.
Murphy wanted to sell some stock warrants. Asensio agreed to seek a buyer for him,
and the next day, called to report that he had found one.
Asensio agreed, in writing, to pay Murphy $4.50 per warrant. All Murphy had
to do was deliver
his 20,000 warrants, and Asensio would complete the sale.
Murphy did so a few days later. But
Asensio did
not deliver his securities to the buyer as promised, nor the $90,000
in proceeds (minus commission) that Murphy was expecting. Instead, Asensio bought the same warrants more cheaply in the open market and filled
the buyer's order with those. Why? Just look at the dates. Asensio
made his deal with Murphy one business day before Black Monday. Once the market
crashed, he was no doubt able to pick up the same securities in the open
market for considerably less than he had agreed to pay Murphy for them.
By selling those
securities to Murphy's buyer instead, a larger profit was made. Murphy, however, was left without a buyer
and with securities that had declined in value due to the crash.
Murphy decided to sue--and also file a complaint with NASD. But by the time Murphy's lawsuit was ready, Asensio had moved to New York. Although he admits knowing about the case, Asensio did not show up for the trial. As a result, he was not present to hear the jury return a verdict against him of almost a quarter million dollars in compensatory and punitive damages.
The Cover-Up Begins
The
court notified Asensio by mail of the jury's decision. In sworn testimony
given in 1998,
Asensio denied receiving the notice. Yet,
court records show it was not returned as undeliverable. Asensio also claimed that he
first saw the verdict seven years after the trial, in 1996. However, he allowed that he must have had "some knowledge" of
the one-paragraph verdict prior to that.
His testimony is refuted by court documents. The court docket
lists several
unsuccessful motions by him in 1990 and
1991 to overturn the verdict.
One motion states plainly that Asensio hired a lawyer
in November 1989 to seek relief from
the verdict. The filing of these motions makes clear that Asensio knew of
the verdict not long after it occurred.
NASD
members have an obligation to
report changes in their disciplinary history, such as new court verdicts, to
the association.
But there is no evidence that Asensio breathed a word to NASD about the Murphy
verdict--when he learned of it in 1989 or at any time thereafter. Leaving regulators in the dark
appears to have been the key to keeping his stockbroker license and to moving up
to broker-dealer status a few years later.
The Duping of NASD
Asensio's disciplinary file at the NASD does contain a brief summary of the Murphy dispute. It is the result of a complaint Murphy filed with the agency independent of the lawsuit. Asensio was asked to fill out a standard reporting form, known as Form U-4, about the dispute. He did so, filing his answers with the agency on December 4, 1989. And what a story he told!
According to Asensio's filing, the dispute was "in litigation" as of that time. But it wasn't. The case had been tried by a jury eight months earlier. It had ruled against him to the tune of a quarter million dollars--and Asensio knew it. After all, only a few weeks earlier, he had hired an attorney to seek a reversal of the verdict against him.
But his filing made no mention of the trial or the verdict. Instead, it boldly asserted that Murphy "did not have any cause whatsoever for claim." Nor did Asensio limit himself to self-righteous opining. Recall that the dispute was about his failure to honor a contractual agreement to deliver Murphy's securities to a buyer. In his filing with NASD, Asensio twisted the facts to put the failure to deliver on Murphy rather than himself!
The client failed to deliver securities that he sold during the crash of October 19, 1987. We had sold the securities in a new account with no equity based on his promise to send the securities via Federal Express the day after the sale. He did not send them. The firm I then worked for bought him in.
For its part, NASD seemed more than willing to accept Asensio's version of the
story and to be generous with him. It never followed up to see what became of the supposed
"litigation." It also made the dispute "non-reportable." This means
that the report was relegated to a
special disciplinary database off-limits to the public. Not that regulators and potential employers who could
use the database found
anything damning. With no factual information about the dispute
or the verdict, it's little wonder that Asensio was able to get job after job on Wall Street before starting
his own firm.
The Feds, Too?
Why Asensio made several efforts to overturn the Murphy verdict in 1990 and 1991, only to abandon them, isn't clear. By 1993, however, it's obvious that he wanted to start his own business. To do so, he needed to complete Form BD, the application to become a broker-dealer.
On October 29, 1993, Asensio presented himself to a notary public with Form BD in hand. Despite the verdict in the Murphy case, his answers on the sworn document assured a federal agency (the SEC) and the NASD that he had never been found by a court to have violated investment-related statutes or regulations.
The application also asked if he had any unsatisfied judgments. Asensio
answered no to that question also. But it's difficult to see how this
could be true. Because four
years later, Asensio asked the court
in Florida for an emergency stay to prevent
execution of Murphy's judgment against him. Obviously, if the judgment was
still unpaid in 1997, it must had been unpaid in 1993.
The SEC and NASD, however, took Asensio at his word that his record was clean. They issued a broker-dealer license to him. So did the state of New York.
Postscript
The day did come
when Asensio was able to free himself of the Murphy judgment. More than
nine years after the jury ruled against him, Asensio was able to have the
verdict set aside on grounds that the process server who handed him the lawsuit
had not been properly licensed. However, keep in mind that this did not happen until
late in 1998. It has no
bearing on whether he improperly withheld information from
regulators before then, or on whether he told the truth when he applied for his broker-dealer
license in 1993.
Put another way, the question here is whether Asensio's statements were true at
the time he made them. And if they weren't? Then the question is what regulators who assure
us they are getting tough on Wall Street wrongdoing intend to do
about it.
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Update 5/12/04
We recently learned that while this
story was being written, NASD was doing something about the deception Asensio
engaged in on his license application. But that something was the opposite
of getting tough. For the astonishing story, one that confirms our worst
fears about the NASD, see Is NASD Corrupt? (two
parts).
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For Reference:
Legitimate License?, an older page of the site, provides a chronology of how
Asensio became registered and licensed as a broker.
Page Created 12/24/03 • Updated 2/15/04 • Updated 5/12/04