Stockbroker's Sitting In On Investment Discussion Becomes Private Securities Violation

March 19, 2013

For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Mark David Hurwitz submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Mark David Hurwitz, Respondent (AWC  2012031504201, March 13, 2013).

In 1986, Hurwitz entered the securities industry and from 1993 through February 16. 2012, he was associated with FINRA broker-dealer Assist Investment Management Company. Inc. The AWC asserts that Hurwitz did not have any prior FINRA disciplinary history.

Just Sittin' In?

The AWC alleges that in February 2006. Hurwitz introduced a customer to the owner of a real estate company called Intervest Financial Corp. Hurwitz purportedly participated in the initial meeting between his customer and Intervest's owner, at which time various Intervest investments were discussed.

Goin' South

At some point, the customer invested $500,00 in three-year general corporate obligation bonds with 10% annual interest rates of Intervest Commercial Mortgage Fund. Inc.  In 2007, Intervest stopped making interest payments on the bonds, and the company defaulted on its obligations.

Online FINRA records as of March 21, 2013, indicate that Assist discharged Hurwitz on February 16, 2012, based upon allegations that a:



The AWC alleges that Hurwitz failed to provide written notice to Assist that he was participating in the Intervest transaction away from the firm; and, accordingly, he failed to receive the requisite written approval or acknowledgement from his FINRA member firm for the transaction in violation of NASD Conduct Rules 3040 and 2110.

In accordance with the terms of the AWC, FINRA imposed upon Hurwitz a $5,000 fine and a three-month suspension from from association with any FINRA broker-dealer in any capacity.

Bill Singer's Comment

Before you get involved as a registered person in some outside transaction in which the parties will be discussing an investment opportunity, make sure that you have read and understood NASD Conduct Rule 3040, which I have reprinted below in full-text with highlights added:

NASD Conduct Rule 3040:
Private Securities Transactions of an Associated Person

(a) Applicability

No person associated with a member shall participate in any manner in a private securities transaction except in accordance with the requirements of this Rule.

(b) Written Notice

Prior to participating in any private securities transaction, an associated person shall provide written notice to the member with which he is associated describing in detail the proposed transaction and the person's proposed role therein and stating whether he has received or may receive selling compensation in connection with the transaction; provided however that, in the case of a series of related transactions in which no selling compensation has been or will be received, an associated person may provide a single written notice.

(c) Transactions for Compensation

(1) In the case of a transaction in which an associated person has received or may receive selling compensation, a member which has received notice pursuant to paragraph (b) shall advise the associated person in writing stating whether the member:

(A) approves the person's participation in the proposed transaction; or

(B) disapproves the person's participation in the proposed transaction.

(2) If the member approves a person's participation in a transaction pursuant to paragraph (c)(1), the transaction shall be recorded on the books and records of the member and the member shall supervise the person's participation in the transaction as if the transaction were executed on behalf of the member.

(3) If the member disapproves a person's participation pursuant to paragraph (c)(1), the person shall not participate in the transaction in any manner, directly or indirectly.

(d) Transactions Not for Compensation

In the case of a transaction or a series of related transactions in which an associated person has not and will not receive any selling compensation, a member which has received notice pursuant to paragraph (b) shall provide the associated person prompt written acknowledgment of said notice and may, at its discretion, require the person to adhere to specified conditions in connection with his participation in the transaction.

(e) Definitions

For purposes of this Rule, the following terms shall have the stated meanings:

(1) "Private securities transaction" shall mean any securities transaction outside the regular course or scope of an associated person's employment with a member, including, though not limited to, new offerings of securities which are not registered with the Commission, provided however that transactions subject to the notification requirements of Rule 3050, transactions among immediate family members (as defined in Rule 2790), for which no associated person receives any selling compensation, and personal transactions in investment company and variable annuity securities, shall be excluded.

(2) "Selling compensation" shall mean any compensation paid directly or indirectly from whatever source in connection with or as a result of the purchase or sale of a security, including, though not limited to, commissions; finder's fees; securities or rights to acquire securities; rights of participation in profits, tax benefits, or dissolution proceeds, as a general partner or otherwise; or expense reimbursements.

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