Articles Tagged with NASD Rule 2110

Stephen Douglas Pizzuti (Puttuti) and David Walton Matthews, Jr. (Matthews) were recently suspended for three months by the Financial Industry Regulatory Authority (FINRA) over allegations that Pizzuti failed to adequately inquire into Richard’s Pizzuti (Richard) and Daniel Voccia’s (Voccia) outside business activities and involvement in private securities transactions despite his knowledge of their activities.  To that end, Pizzuti failed to follow up on “red flags” regarding Richard’s and Voccia’s investment activities.  In addition, FINRA also found that Matthews, Merrimac’s Chief Compliance Officer, also failed to supervise Richard and Voccia investment activities.

Pizzuti controls Merrimac Corporate Securities, Inc. (Merrimac) and was the firm’s Chef Executive Officer during the relevant period.  Pizzuti, as the managing principal of Merrimac and the firm’s CEO, had overall responsibility for the Merrimac’s compliance policies.  Matthews became President of Merrimac in early 2004.  Matthews was also the Merrimac’s Chief Compliance Officer until mid-2008 but thereafter and remained the Merrimac’s President. Matthews reports directly to Pizzuti.

FINRA found that from at least 2006 to April 2009, Pizzuti failed to reasonably supervise the outside business activities and private securities transactions of Richard and Voccia.  Both Richard and Voccia were registered representatives at Merrimac.

The Financial Industry Regulatory Authority (FINRA) suspended broker Anthony Mediate (Mediate) for 60 days concerning allegations of excessive trading (churning) and unauthorized trading.  “Churning” is excessive investment trading activity that serves little useful purpose or is inconsistent with the investor’s objectives and is conducted solely to generate commissions for the broker.  Churning is also a type of securities fraud.

FINRA alleged that Mediate violated NASD Rules 2110 and 2310.  NASD Rule 2310(a) provides that when recommending the purchase, sale, or exchange of any security a broker “shall have reasonable grounds for believing that the recommendation is suitable for such customer…”  A broker’s recommendations must “be consistent with his customer’s best interests.” NASD IM-2310-2(a)(1) also require that the broker must “’have reasonable grounds to believe that the number of recommended transactions within a particular period is not excessive.”  NASD IM-2310-2(b)(2) prohibits brokers from excessively trading in customer accounts.

An excessive trading violation occurs when: 1) a broker has control over the account and the trading in the account, and 2) the level of activity in that account is inconsistent with the customer’s objectives and financial situation.  Where an intent to defraud or reckless disregard for the customer’s interests is present the activity is also churning.

Contact Information