NASD Fines Trader For Not Taking His Own Advice

by Glen Shapiro, LawAndTax-News.com, New York

28 February 2005

The US National Association of Securities Dealers (NASD) announced last Wednesday that it has fined and suspended former Jesup & Lamont research analyst, Gary Davis for trading contrary to his own recommendations.

In addition to fining Mr Davis $130,000, suspending him from the industry for six months, and prohibiting him from acting as a research analyst for 18 months, the NASD announced that it has charged Jesup & Lamont, and the broker-dealer's compliance officer, Robert Strong, for failing to provide adequate supervision.

According to a statement released by the regulatory body last week, from January 2002 to September 2003, Davis authored 12 research reports with "buy" or "strong buy" recommendations. On 41 separate occasions after these research reports were published, Davis executed sales of shares of companies he covered that were inconsistent with the "buy" or "strong buy" recommendations in his reports.

Davis sold a total of 215,657 shares in seven different securities and netted profits of more than $116,500 through his personal investment accounts at Jesup & Lamont.

Speaking with regard to the allegations levelled at Mr Davis, NASD vice chairman, Mary L. Schapiro announced that:

"The rules are clear. Analysts may not profit from the recommendations in their research reports."

She went on to add:

"Analysts must, at all cost, avoid conflicts of interest when they own and trade securities they cover. In this case, the analyst not only traded in violation of NASD rules - his firm and the analyst's supervisor failed to detect and prevent his illegal trading."

In settling the matter, Mr Davis neither admitted nor denied the charges.

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