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A: No, the registered person should answer “Yes” to both Questions 14I(3)(a) and 14I(3)(b) and submit
one DRP with details for both alleged violations. (Originally posted 04/29/98; revised 09/01/99, revised
5/18/09)
Q3: Are there any differences for reporting securities, commodities, banking, insurance and real estate
complaints under Questions 14I(3)(a) and (b) or 14I(5)(a) and (b)?
A: Yes. The definitions of the terms "investment-related," "sales practice violations," and "self-regulatory
organization" should be carefully reviewed because they result in different reporting obligations under
14I(3)(a) and (b) and 14I(5) (a) and (b).
A written customer complaint that includes an allegation of a sales practice violation (as well as the other
threshold requirements) must be reported under Question 14I(3)(a). Likewise, the subject of an
arbitration/litigation that includes an allegation of a sales practice violation (as well as the other threshold
requirements) must be reported under Question 14I(5)(a). A sales practice violation is defined to include
any conduct directed at or involving a customer which would constitute a violation of any rules for which
a person could be disciplined by any self-regulatory organization; any provision of the Securities
Exchange Act of 1934; or any state statute prohibiting fraudulent conduct in connection with the offer,
sale, or purchase of a security or in connection with the rendering of investment advice. A self-regulatory
organization is defined to include any national securities or commodities exchange, any national
securities association (e.g., FINRA), or any registered clearing agency. Thus, a sales practice violation
includes a violation of the rules of FINRA, any national securities or commodities exchange (e.g., the
New York Stock Exchange, the Chicago Board of Trade), and any registered clearing agency (e.g., the
National Securities Clearing Corporation); a violation of the Exchange Act; and a violation of any state
statute prohibiting fraudulent conduct in connection with the offer, sale, or purchase of a security or in
connection with the rendering of investment advice. A sales practice violation does not include violations
of banking, insurance, or real estate laws or rules. Thus, complaints concerning a security, variable
contract that is subject to regulation under the federal securities laws, or commodity exchange product
are reportable under Questions 14I(3)(a) or 14I(5)(a), but complaints solely concerning other products
are not reportable under Questions 14I(3)(a) or 14I(5)(a).
However, Questions 14I(3)(b) and 14I(5)(b) are not limited by the term "sales practice violations." Thus,
a written customer complaint that relates to securities, commodities, banking, insurance, or real estate
and alleges forgery, theft, or misappropriation or conversion of funds or securities is reportable under
14I(3)(b). Similarly, a registered person who is the subject of an investment-related, consumer-initiated
arbitration claim or civil litigation relating to securities, commodities, banking, insurance, or real estate
that alleges that the registered person was involved in forgery, theft, misappropriation or conversion of
funds or securities is reportable under 14I(5)(b). (Originally posted 04/29/98; revised 09/01/99; revised
05/18/09)
Q4: What is included in the term "misappropriation or conversion of funds or securities”?
A: Misappropriation refers to any intentional or reckless use of customer funds or securities. This
includes, but is not limited to, placing money from a customer into an account under a representative's
control, diverting funds or securities from one customer's account to another customer's account, and
stealing customer funds or securities. The term does not include complaints about delays in transfers of
funds or accounts.