NASD: Unfit to Regulate
Part Two
What did NASD know and when did it know it? Regulators there didn't need this website to learn Asensio's darkest secret. The Murphy fraud verdict was revealed in the New York Times on March 11, 1998. That was almost five years before Asensio Exposed went online.
Dozens of NASD employees must have read about the verdict back then. Surely some wondered how Asensio moved up to broker-dealer status with a quarter million dollar verdict against him. Not to mention that it sounds like NASD may have known about the verdict as early as 1996! If it had pursued the matter, it would have discovered the deceits described in Part One. That it didn't is more evidence that it prefers to see no evil.
The "Tough Cop" Cops Out
Not following a lead is one thing. Not cooperating with Eliot Spitzer's office is quite another. NASD's District 10 showed its true colors by refusing to answer Spitzer's office about a reader's complaint that Asensio had fraudulently obtained his broker-dealer license. What could be more shameful than NASD not answering law enforcement? Read on.
When the SEC forwarded the identical complaint, District 10 realized it would have to act. Asensio's ownership of his brokerage was transferred to others, and the name changed to Integral Securities. But the law (and NASD's by-laws) require disqualification from the industry for such an offense, and offenders are usually fined. District 10 let Asensio stay in the industry and didn't fine him a penny for what looks like a decade of ill-gotten gains. Not to mention that the ownership change appears to be a sham.
In September, 2003, NASD also changed Asensio's file to say he no longer works at a member firm. Asensio did give up his personal registration then. But he did not leave his brokerage. The next month, he filed a Form BD claiming ownership of Integral Securities. Ownership was then transferred to a trust whose owners can't be determined, but filings current to March 15, 2005, do list him as a "control affiliate."
Was this another case of incompetent recordkeeping--or an intentional effort to mislead? We'll never know. Did it matter? In January, 2004, Spitzer's staff followed up on NASD's failure to answer their inquiry. Somehow--presumably via a phone call with District 10--they were led to believe that NASD had removed Asensio from the industry.
Spitzer's staff relayed this information by letter to the citizen who had complained about Asensio's license. A cover memo and attachment advised him that Asensio's supposed exit from the industry "reflects action taken by the NASD." On receipt, the citizen called Integral Securities. An employee confirmed that Asensio was not only there, but still in charge. This was almost five months after NASD changed Asensio's file to say he no longer worked at a member firm.
But Spitzer's staff was convinced that Asensio had been removed from the industry and declined to pursue the license fraud complaint. District 10 had saved Asensio again. In doing so, it had duped the office of the man considered the #1 crusader against Wall Street fraud.
Where is the Leadership?
Robert Glauber and Mary Schapiro, NASD's top officials, were asked to intervene in District 10's shenanigans more than a year ago. But there has been no visible evidence of action to correct District 10's improper handling of the complaint about Asensio's license. We expected better from them. Quite a few members of the NASD leadership are attorneys--officers of the court. You'd think false statements on sworn documents would appall them, as would District 10's failure to enforce the law and NASD's own by-laws.
We're hardly the only ones to notice NASD's failure to enforce its own rules. Consider this letter to the SEC about short-selling abuses written by no less than a vice-president of Charles Schwab:
The NYSE and other SROs [such as the NASD] have had trade affirmation rules on their books for some time. However, such rules have not been effective in changing the behavior of Buy-Side firms or their custodians; nor do the rules provide assurance that the affirmed trade will settle.
What he was really saying is that the rules have not been enforced. It brings to mind another dark moment in Wall Street history: SEC's 1996 censure of NASD for failing to halt rampant price-fixing on the NASDAQ. A reporter described the mindset of NASD leaders at the time:
documents depict an organization that neglected its oversight responsibility ... When the trading abuses came to light in 1994, the NASD viewed them as a public relations problem rather than a call for self-examination. To the end, the NASD failed to come clean about its problems.
NASD changed its organizational structure in response to the censure. But the tolerance for flagrant wrongdoing that led to the scandal seems to have survived. The question is what investors can do about it.
Washington, We Have a Problem
The most obvious way to call NASD to account is via the SEC. It has direct responsibility for NASD oversight. We believe Chairman Donaldson should approach the issue as he did the hedge fund controversy. Explaining his decision to scrutinize that industry, he recently said:
Two years down the pike when something blows up, and it surely
will, the SEC would be really nailed for not being on top of this.
What would be worse? A big hedge fund blowing up--or the public finding out that the SEC had done nothing about NASD despite evidence it had put members above the law? The answer is obvious.
If you agree, it's time to make your voice heard. Email the SEC Commissioners to ask that the agency investigate NASD's enforcement program. We suggest focusing on the following issues:
* Backroom deal-making.
It's difficult to believe that Asensio has been the sole
beneficiary of District 10's rule-bending. The SEC needs to
find out the extent of its deal-making contrary to law and NASD bylaws.
* Refusing to investigate complaints. NASD
says it investigates all customer complaints.
But many complaints are about members with whom the complainant lacks a customer
relationship (e.g. market makers, research analysts). Anecdotal reports
(and our experience) suggest NASD often ignores these complaints.
The SEC needs to determine if compelling complaints are being ignored to the
benefit of wrongdoers.
* Protecting
members from law enforcement. It goes without saying that
the SEC needs to look into whether District 10 has been helping NASD members evade accountability
by government agencies.
The SEC Commissioners are William Donaldson, Paul
Atkins, Roel Campos, Cynthia Glassman, and Harvey Goldschmid. Their email
addresses are:
donaldsonw@sec.gov;
chairmanoffice@sec.gov; atkinsp@sec.gov;
camposr@sec.gov;
glassmanc@sec.gov;
goldschmidh@sec.gov
Your email need not go into great detail--and can be as brief as
this sample if you like. If you have your own
experiences with NASD, feel free to share them with the Commissioners
(1).
No one can predict whether this effort will bear fruit. If it doesn't, we'll appeal to the Subcommittee on Capital Markets of the House Financial Services Committee and the Senate Banking Committee. These are the primary committees on Capitol Hill that conduct oversight of NASD and the SEC. But let's try to work with the SEC first.
___________________
Update, 3/20/05
Shortly after posting the original version of this
page, we learned that a hearing panel had
barred Asensio from the securities industry for his failure to provide information requested by
the NASD staff.
Asensio has appealed the ruling, however, so it appears to be in limbo.
The ruling does not address the concerns raised on this page. We can now
report that NASD's Division of Enforcement had a complaint alleging that Asensio
may have fraudulently obtained his license more than a year before it filed the
charges brought before the hearing panel. Yet the Division ignored the
issue entirely.
Where does the ruling leave our call for an SEC investigation of NASD? Unchanged. We're not asking the SEC to investigate Manuel Asensio. We're asking that it investigate NASD. Logic tells us that the extraordinary protection given to Asensio in the license fraud matter is unlikely to have been an isolated incident.
We urge all concerned investors to email the Commissioners.
___________________
(1) To send hard copies of your
comments, address them to each Commissioner at Securities and Exchange Commission,
450 Fifth Street NW,
Washington, DC 20549
___________________
Page Created 3/13/05 ● Updated 3/20/05