Salomon Grey Financial Expelled by NASD - May, 2006
WASHINGTON, April 27 /PRNewswire/ -- NASD announced today that it has expelled Dallas-based brokerage firm Salomon Grey Financial Corporation from the securities industry and barred its owner and former president, Kyle Browning Rowe, over charges of extensive supervisory failures, anti-money laundering violations, email retention violations, customer complaint reporting violations and unauthorized searches of NASD's Central Registration Depository (CRD).
"Any one of these violations is serious and would pose a substantial risk to the firm's customers -- and anti-money laundering rule violations could compromise our national interest in preventing financial institutions from being exploited for money laundering and terrorist financing," said James Shorris, NASD Executive Vice President and Head of Enforcement. "In this unusual case, the occurrence of all of these violations in a single firm calls for the most severe sanction: expulsion."
At its peak, Salomon Grey operated as many as 14 registered branch offices located throughout the United States, with a concentration of offices in California, New York and Florida. Most of the branch offices were independently owned and operated by brokers who worked in the offices. The firm had numerous registered representatives, including several with extensive disciplinary histories.
NASD found that during the period from approximately January 2000 to March 2005, Salomon Grey's supervisory system was inadequate to supervise its dispersed group of offices and high-risk brokers. Among the firm's supervisory system deficiencies:
* The firm permitted the brokers in each branch office to hire branch managers, resulting in situations where the branch managers were charged with supervising the very brokers who hired them and had the effective ability to fire them.
* The firm permitted brokers with extensive disciplinary histories and ongoing regulatory actions against them (including a broker who was appealing an SEC-imposed bar from the securities industry) to serve as supervisors.
* The firm failed to adequately respond to "red flags" of ongoing misconduct by several of its brokers, which led to customer harm. For example, the firm ignored ongoing warning signs of unauthorized trading by brokers who had been previously disciplined for unauthorized trading; who were the subjects of ongoing regulatory investigations for, among other things, unauthorized trading; and who were the subjects of customer complaints alleging unauthorized trading.
* The firm failed to impose and/or enforce heightened supervisory measures against brokers with disciplinary histories and ongoing customer complaints, and failed to take meaningful disciplinary action against representatives and supervisors who failed to comply with or enforce purported heightened supervisory measures.
* The firm employed unqualified supervisory and compliance staff.
NASD also found that during the period from April 2002 to March 2005, Salomon Grey had an inadequate anti-money laundering (AML) program. Among other things, the firm's program was not approved in writing by senior management and did not identify an AML Compliance Office, did not provide for on-going training of appropriate personnel or independent testing, did not contain a written customer identification program, and had inadequate policies and procedures regarding the detecting and reporting of suspicious activity.
NASD further found that from January 2003 through March 2005, Salomon Grey conducted unauthorized searches of CRD by failing to obtain and/or retain the required written consent in connection with pre-hire registration searches of at least 39 individuals. The firm had inadequate supervisory procedures regarding this aspect of its business.
Finally, NASD found that from January 2000 through May 2004, Salomon Grey and Rowe failed to maintain electronic communications in violation of the books and records provisions of the federal securities laws and NASD rules; from May 2004 through March 2005, failed to enforce the provisions in its written supervisory procedures that prohibited the use of non-corporate email accounts for securities-related communications by associated persons; from October 2001 to March 2004, failed to report, or to timely report, customer complaints pursuant to NASD Rule 3070; from September 2001 to April 2003, failed to amend, or to timely amend, Forms U4 and/or U5 to disclose customer complaints; and failed to establish and maintain a supervisory system and procedures that were reasonably designed to detect and prevent these violations.
In settling with NASD, Salomon Grey and Rowe neither admitted nor denied the allegations, but consented to the entry of NASD's findings.