NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.

NASD RULES 1120 AND 2110 - RESPONDENT FAILED TO COMPLETE THE REGULATORY ELEMENT OF CONTINUING EDUCATION WHILE HE WAS ASSOCIATED WITH MEMBER FIRM. RESPONDENT ALSO FUNCTIONED AS A GENERAL SECURITIES REPRESENTATIVE OF MEMBER FIRM DURING HIS REGISTRATION WAS INACTIVE. IN ADDITION, RESPONDENT RECEIVED COMPENSATION OF APPROXIMATELY $11,285.00 IN CONNECTION WITH THE ACTIVITIES REQUIRING REGISTRATION IN WHICH ENGAGED DURING HIS INACTIVE STATUS.

Decision & Order of Offer of Settlement

Monetary/Fine

$2,500.00

WITHOUT ADMITTING OR DENYING THE ALLEGATIONS OF THE COMPLAINT, RESPONDENT HAS SUBMITTED AN OFFER OF SETTLEMENT AND CONSENTED TO THE ENTRY OF FINDINGS OF FACTS AND VIOLATIONS CONSISTENT WITH THE ALLEGATIONS OF THE COMPLAINT, AND TO THE IMPOSITION OF THE SANCTION SET FORTH BELOW: IT IS ORDERED THAT RESPONDENT BE FINED IN THE AMOUNT OF $2,500.00.

THE NASD (FINRA) HAD CHANGED THEIR PROCEDURE FOR NOTIFYING BROKER-DEALERS (BD) OF THEIR REGISTERED REPRESENTATIVES UPCOMING CONTINUING EDUCATION (CE) REQUIREMENTS FROM POSTAL MAILINGS, TO ONLINE NOTIFICATION. FINRA FAILED TO PROPERLY NOTIFY ITS MEMBER BD FIRMS OF THE CHANGE AND MANY BD FIRMS ACROSS THE NATION WERE CAUGHT UNAWARE OF THEIR REGISTERED REPRESENTATIVES BEING OUT OF CE COMPLIANCE. THERE WAS A MASS RESPONSE FROM THE BD COMMUNITY AND A DECISION WAS MADE BY THE WASHINGTON, D.C. FINRA CENTRAL OFFICE TO ALLOW THE REGIONAL FINRA OFFICES TO USE THEIR DISCRETION AS TO HOW TO HANDLE THE CE COMPLIANCE INFRACTIONS. CLINE, BEING UNIFORMED OF HIS CE REQUIREMENTS, BECAME INADVERTENTLY INACTIVE. THE REGIONAL FINRA OFFICE CHOSE TO FOLLOW THROUGH WITH A COMPLAINT. UNDER ADVICE OF LEGAL COUNSEL, CLINE NEGOTIATED AN OFFER-OF-SETTLEMENT.

NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.

Decision & Order of Offer of Settlement

Monetary/Fine

$10,000.00

Censure

IN NOVEMBER OF 1994, JEFFREY E. CLINE (CLINE) FORMED A NEW BROKER-DEALER (BD) WITH KEVIN KUNZ (KUNZ). CLINE AND KUNZ WERE BOTH PRINCIPALS, EACH WITH A 50% OWNERSHIP. CLINE CONCENTRATED HIS EFFORTS ON THE OPERATIONS AND THE INVESTMENT MANAGEMENT AREAS OF THE BD, WHILE KUNZ OVERSAW THE COMPLIANCE AND FINANCIAL PLANNING AREAS. IN EARLY 1995, KUNZ BROUGHT A PRIVATE PLACEMENT PROJECT TO BE OFFERED THROUGH THE BD. CLINE WAS INVOLVED WITH KUNZ IN THE INITIAL DUE DILIGENCE AND FINAL APPROVAL OF THE OFFERING. KUNZ LATER SOLD THE OFFERING TO THE PUBLIC VIA HIMSELF AND OTHER REGISTERED REPRESENTATIVES WHO WERE UNDER HIS SUPERVISION. IT WAS LATER IN 1995, THAT KUNZ BROUGHT ANOTHER OFFERING FROM THE SAME ISSUER FOR CONSIDERATION TO THE BD. IT WAS DURING THE DUE DILIGENCE OF THAT NEW OFFERING THAT CLINE DISCOVERED THAT THE PRIOR OFFERING DOCUMENTS HAD BEEN ALTERED AND THAT SOME OF THE INITIAL INFORMATION HAD BEEN MISREPRESENTED AND OMITTED. AFTER THIS DISCOVERY AND WITH GUIDANCE OF LEGAL COUNSEL, CLINE INITIATED AN INVESTIGATION BY BOTH THE SECURITIES AND EXCHANGE COMMISSION AND THE REGIONAL NASD (FINRA) OFFICE. FURTHER INVESTIGATION WOULD SHOW THAT KUNZ MAY HAVE BEEN INVOLVED WITH THE MATERIAL MISREPRESENTATION AND OMISSION OF MATERIAL INFORMATION OF THE OFFERING. IN ADDITION, KUNZ WAS FOUND TO HAVE PAID COMMISSIONS FOR THE SALES OF THE OFFERING TO AN UNREGISTERED PERSON. EVEN THOUGH CLINE HAD NOT SOLD ANY OF THE OFFERING TO ANY INVESTORS, FINRA TOOK THE POSITION THAT CLINE, ACTING AS A PRINCIPAL OF THE BD, HAD CAUSED A MEMBER FIRM (THE BD) TO SELL A NON-REGISTERED SECURITY AND FILED A COMPLAINT. THE OFFERING HAD BEEN DEEMED TO BE A NON-REGISTERED SECURITY BECAUSE OF MATERIAL MISREPRESENTATION AND OMISSIONS. TO EXTRICATE HIMSELF FROM THE COMPLAINT AND UNDER ADVICE OF LEGAL COUNSEL, CLINE NEGOTIATED AN OFFER-OF-SETTLEMENT.