NASD-Asensio Scandal:
The Plot Thickens
Earlier this year, we told you how NASD's District 10 protected Asensio when asked to investigate complaints that he had fraudulently obtained his broker-dealer license. Its first move was to refuse to answer when Eliot Spitzer's office asked for its response to evidence that Asensio had falsely claimed a clean court record on his sworn license application.
District 10 was then asked by the SEC to investigate the same issue. It obviously found a problem. Though failure to disclose material facts is a disciplinary issue, that's not how District 10 handled the case. It simply allowed Asensio to transfer ownership of his firm to a foreign trust and an employee, Owen Hernandez--who is also his cousin.
What we could not tell you previously was whether District 10 knew of this close relationship and the likelihood that Asensio would remain a controlling influence in the renamed business, Integral Securities. But we now have new information. Brace yourself.
Sweet Deal?
The new owners of Integral Securities had to file Form BD with the NASD, and amend it when any changes were made. They have now filed the form three times, each time listing Asensio as a "control affiliate." A control affiliate is:
A person named on the Form BD as a control person or any other individual or organization that directly or indirectly controls, is under common control with, or is controlled by, the applicant filing the Form BD . . . [excluding support staff].
From
this, it appears that District 10 agreed that Asensio could continue to work in the
securities industry. We really don't know how NASD reconciles this with
its by-laws and federal law. Both say the penalty for a false statement of a
material fact on a membership application is disqualification from the
industry.
Nonetheless, finding Asensio named as a control affiliate by Integral was
not the only new development that made us wonder whether NASD deserves
investors' trust.
To appreciate what was done here, you have to look at how the complaint against Asensio came about. On his 1993 license application, he was asked, Has any domestic or foreign court ever found that the applicant or a control affiliate was involved in a violation of investment-related statutes or regulations? Even though a quarter-million dollar verdict for defrauding and deceiving a former client was in force against him at the time, Asensio answered no.
That "no" answer on his sworn application was the original basis for complaints filed by a reader of this site. But the reader later advised District 10 that Asensio had also concealed another fraud verdict, returned in 2002. He sent District 10 documents showing that eight days after a judge upheld the jury verdict, Asensio submitted an amended Form BD on which he again claimed a clean legal history. He also says he discussed this with the District 10 investigator several times.
This matters because the 2002 verdict was the only one in force when Integral
named Asensio as a control affiliate. Each time it did so,
Integral was asked the same question:
Has any domestic or foreign court ever found that the applicant or a control
affiliate was involved in a violation of investment-related statutes or
regulations?
Three times, Integral answered no--despite the 2002 verdict against Asensio. Yet
it apparently encountered no problem with its Form BD. Did District 10
investigators approve a Form BD they knew to be false? We don't know who
signed off on the form. We do think that, given the documentation of the 2002 verdict
provided to NASD, someone should have caught this.
Someone also should have noticed another bizarre claim on Integral's filings. Integral filed Form BD repeatedly in 2004, always reporting that control affiliate Asensio is duly registered with NASD. To the contrary, Asensio hasn't been personally registered since September, 2003.
How NASD failed to notice this repeated false claim, we can only speculate. None of the possibilities reflect favorably on NASD.
Beyond Asensio
What mystifies us most is why NASD was so willing to bend the rules for Asensio. After all, he's not an organization insider, but an open antagonist who has run afoul of the rules repeatedly. If District 10 would ignore the law and its own by-laws to protect him, who else has it gone out of its way to protect? Or was the saga described here really a one-time event?
We sincerely doubt it. We believe it's time for the SEC, which is charged with oversight of the NASD, to get to the bottom of what goes on there. If NASD has nothing to hide, it should welcome an investigation into whether its disciplinary and approval processes have been corrupted. If the SEC won't rise to the occasion, investors will need to ask Congress, which has oversight authority over both NASD and the SEC, to step in.
Until changes are made, we hope the self-described "tough cops" at NASD will hold the rhetoric about what a great job their organization does for the investing public. As long as NASD leaders tolerate the kind of abuses and lapses seen in this case, they have--to paraphrase Bob Dylan--a lot of nerve to say they are investors' friends.
Page Created 9/30/04 ● Updated 7/29/05