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NASD Fines Member Firm Over Self-Supervision Program

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The National Association of Securities Dealers Inc. says a financial services distribution company gave producing branch managers too much ability to supervise their own activities.

The NASD, Washington, has imposed a $2.75 million fine on Raymond James Financial Services Inc., St. Petersburg, Fla., a unit of Raymond James Financial Inc., in connection with allegations that the company failed to maintain an adequate supervisory system for a national network of about 1,100 producing branch managers.

The NASD also permanently barred one of the branch managers, Donna Vogt.

Vogt was able to classify more than 90% of her 700 accounts as having a primary investment objective of “growth” and a risk tolerance of “medium” because Raymond James gave her too much ability to supervise her own business activities, NASD officials allege.

From early 2000 to September 2004, Raymond James let branch managers in its many small offices approve their own transactions, open and accept new accounts, and review their own correspondence, NASD officials report in a discussion of the self-regulatory organization’s findings.

“The firm relied on an electronic transaction surveillance system maintained by [Raymond James'] compliance department, and a series of exception reports, to flag transactions that required further review,” NASD officials allege. “It also assigned supervisory responsibility for these 1,100 branch managers to 3 sales managers. The activities commonly associated with daily supervision, however, were conducted by the branch managers, who in many cases, in effect, supervised themselves.”

Because of weak supervision, Vogt was able to recommend unsuitable mutual funds and variable annuities to elderly customers and customers nearing retirement age, NASD officials allege.

Raymond James and Vogt have neither admitted nor denied the charges, but they have consented to the entry of the NASD’s findings, according to the NASD.

The telephone number listed for Vogt in Campbellsport, Wis., has been disconnected, and no other contact information was immediately available.

Raymond James has issued a statement noting that it fired Vogt when problems with her records and client recommendations came to light late in June 2003.

“Raymond James Financial Services is firmly committed to providing its clients with appropriate recommendations and financial services,” the company says in its statement. “Although the firm believed at the time that its supervisory procedures were sufficient and at or above standards in the industry, it has since (independent of this incident) made investments of several million dollars to introduce new technology to assist in this effort and has substantially increased the number of personnel in its compliance, sales management and supervision areas and will continue to make investments to carry out its commitment to its clients.”

The settlement will not materially affect the parent company’s financial results, Raymond James says.