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News January 16, 2006 Issue

NASD Charges Oppenheimer Over Breakpoint Self-Assessment

Last week, the NASD announced that it had charged Oppenheimer and its CEO, Albert Lowenthal, with knowingly submitting inaccurate and incomplete data in response to the NASDís spring 2003 request that fund groups perform a breakpoint self-assessment. The self-assessment involved testing a sample of fund transactions to determine whether the fund group properly calculated breakpoint discounts purchases.

Specifically, Oppenheimer was required to sample 800 Class A share transactions. According to a press release issued by the NASD, however, the senior officer at Oppenheimer responsible for preparing the sample first included B and C share transactions in the sample. The inclusion of those transactions "improperly diluted the firmís sample, resulting in the firm sampling fewer Class A transactions than the NASD had required," claimed the NASD.

Moreover, the regulator asserted that Lowenthal became aware of the inclusion of the B and C share transactions three days before the sampleís due date. "Regardless, Lowenthal allegedly ordered the submission of this flawed data to NASD; Lowenthal neither notified NASD about the flawed data, nor did he request anyone else to notify NASD about the flawed data, either before or after the firmís submission," said the regulator.

The NASD picked up on the problem in a matter of days and asked the firm to submit a new self-assessment. Lowenthal apparently assigned the re-self-assessment to the same senior officer. After that person subsequently was terminated a few months later, Lowenthal did not assign the self-assessment project to another qualified principal of the firm, the NASD claimed. Eventually, Oppenheimer produced a second self-assessment, which the NASD alleged contained many of the same defects as the original submission.

"All regulated firms have a fundamental obligation to cooperate with NASD requests for information by providing complete, accurate and responsive data in a timely manner," said Barry Goldsmith, NASDís enforcement head. He called the matter "especially troubling," citing Oppenheimerís "repeated lack of cooperation" with the NASD (this past May, the NASD accused Oppenheimer of "thwarting" an NASD muni bond investigation by failing to produce e-mails for 20 employees and delaying the production of trade confirms for over a year, despite repeated NASD requests.) "More significantly," added Goldsmith, "the CEO himself allegedly directed the firm to provide NASD with information that he knew to be inaccurate."

At least, thatís the NASDís side of the story.

In a press release of its own, Oppenheimer said that it, along with its CEO, intended to "vigorously defend the action." Apparently, the fund group had predicted some problems even before the self-assessment was due: "Oppenheimer had previously informed the NASD of certain limitations within its system relative to selecting out and generating data in the form requested by the NASD," it said. However, the NASD said that no filing extensions would be granted to any firm. "As a result, at the deadline, Oppenheimer submitted the data it then had available."

Oppenheimer also asserted that it was proper to delegate the overall responsibility for the self-assessment. "The Company and Mr. Lowenthal, the CEO, further maintain that the assignment of overall responsibility for the response to the 2003 survey was properly delegated by its CEO to individuals who had the requisite experience and background to complete and file the survey with the NASD." They noted that the senior officer had more than 25 years of industry experience. "This was an appropriate delegation of responsibilities as required under normal corporate organization, the securities laws, and the NASDís own rules," said the fund group.

Oppenheimer made a point of noting that the NASD did not provide it with a copy of the charging complaint prior to NASDís issuing a press release.

The NASD last week also announced that it had fined Oppenheimer $250,000 for at least 230 late CRD disclosures related to customer complaints, regulatory actions, and terminations.