June 15, 1998
Thomas M. Mierswa, Jr.
Gruntal & Co., LLC
Fourteen Wall Street
New York, NY 10005-2176
|Re:||Gruntal & Co., LLC Continuing Plan for Retiring Registered Representatives|
Dear Mr. Mierswa:
The Department acknowledges receipt of your letter, dated May 12, 1998, along with its exhibits, wherein you request confirmation that the staff of the Department will recommend that the Commissioner take no action to enforce the agent registration provision of the Arkansas Securities Act, Ark. Code Ann. § 23-42-301, with respect to the participation of retired, but previously registered, Gruntal & Co. ("Gruntal") agents in the Gruntal Continuing Compensation Plan for Retiring Registered Representatives ("Plan"). The facts surrounding the Plan described in your letter and exhibits are briefly set forth below.
The Plan will permit the orderly and efficient transfer of client accounts from a retiring agent to one or more actively registered receiving agents. Under the Plan, Gruntal will enter into an agreement with any retiring agent who meets the eligibility requirements of the Plan and the approval of the Plan Committee. The continued participation and compensation under the Plan of a retiring agent will be contingent upon his/her continued satisfaction of the eligibility criteria at the commencement of as well as throughout the Plan period. The retiring agent may nominate one or more active agents to be recipients, who must be accepted into the Plan by meeting certain requirements and must be approved by management and the Plan Committee. The retiring agent and the active agent will share the eligible gross commissions derived from the Core Accounts for a period of three years from the agents retirement date. The retiring agents percentage share of the commissions will decline annually over the duration of the Plan. The retiring agent will not contact former clients, directly or indirectly, for the purpose of or with the effect of soliciting them to maintain securities accounts or to engage in securities transactions, and will not discuss securities accounts or securities transactions with former clients. He/she will not maintain any license as a registered agent with Gruntal or any other broker-dealer and will not engage in the securities industry to any other extent or manner which would require the retiring agent to register with any regulatory or self-regulatory organizations, agencies, commissions or exchanges. Failure to comply with these terms will require forfeiture of all past compensation as well as all rights to future compensation under the Plan.
The staff understands that there will be a complete severance by the retiring agent from the securities industry. It is the staffs further understanding that the Core Account customers will be notified of the particulars of the commissions sharing arrangement between the retiring agent and the active agent. The staff considers the accuracy of these understandings determinative because: 1) Ark. Code Ann. § 23-42-102(2)(A) defines "agent" to include "any individual, other than a broker-dealer, who represents a broker-dealer . . . in effecting or attempting to effect purchases or sales of securities"; 2) Ark. Code Ann. § 23-42-301(a) states that "if is unlawful for any person to transact business in this state as agent unless he is registered under the Act"; 3) Rule 308.01(S) of the Rules of the Securities Commissioner provides that an agent commits an unethical practice when, without notice to the customer, he divides or otherwise splits his commission, profits or other compensation derived from the purchase or sale of securities.
Based upon the representations contained in your letter, its attached exhibits, and the understandings of the staff expressed herein, the staff will recommend that the Commissioner take no action to enforce the registration provisions of Ark. Code Ann. § 23-42-301(a) with regard to the status of the retiring agent upon their retirement so long as there is strict adherence to the Plans terms and requirements. In reaching this recommendation, the staff has considered Gruntals status as a registered broker-dealer and the registered status of the active agent.
It is important to note that the position of the staff is based solely upon the representations made in your letter, its exhibits, the transactions described therein, and the understandings of the staff expressed herein. Different facts or circumstances might, and often would, require a different response. The position expressed deals only with anticipated enforcement action by the Department and does not purport to be a legal opinion.