NYSE Bans a Former Broker Accused of Fraud : Wall Street: L.A.-based Rodney A. Davis is forbidden to work with any exchange-member firm for four years.
The New York Stock Exchange on Wednesday censured and temporarily banned from association with any NYSE member firm a former Los Angeles-based PaineWebber Inc. stockbroker accused of defrauding many small investors.
The broker, Rodney A. Davis, 49, was the lead example cited in a Times investigative series in July about major Wall Street firms that knowingly keep on brokers who have long records of cheating customers.
The disciplinary case is unusual because the exchange’s board of directors approved a settlement with Davis over the objections of an NYSE hearing panel, which had urged stronger punishment.
Under the settlement, Davis is banned for four years from association with any Big Board member firm.
Davis frequently bought air time on Channel 22, a local financial news television station, to solicit customers. He was with Paine-Webber in Los Angeles from June, 1984, until last January.
The NYSE board of directors found Davis guilty of violations that began in 1984 involving 11 customers. The violations include falsifying documents, making trades customers never asked for, ignoring customers’ instructions, lying to customers about the value of their accounts and illegal options trading.
In one example cited by the exchange, Davis falsified the account records of a 66-year-old widow of modest means who had invested $25,000 with Davis, mainly for the purpose of buying life insurance.
The exchange found that Davis lost nearly all of her investment through highly risky options trading that was completely unsuitable for someone of limited income. The NYSE found that Davis had lied to the widow about the risks of options trading and about how well the account was performing.
Davis failed to respond to a request for comment left on the answering machine of a small publishing concern he is affiliated with. His home telephone number is unlisted. In an interview several months ago, however, he denied any wrongdoing.
In a statement issued Wednesday after the NYSE action was disclosed, PaineWebber said the firm “believes that the outcome of the New York Stock Exchange proceedings against Mr. Davis reflects an appropriate regulatory response and that brokers who are involved in serious violations of exchange rules should be subjected to severe penalties.”
David Doherty, the exchange’s senior vice president for enforcement, declined to disclose the tougher penalties the panel had asked for, or to say why Davis wasn’t fined. But he defended the four-year ban as “an extremely significant sanction.”
Doherty also acknowledged that it took the exchange almost six years to act against Davis from the time it began investigating his activities at PaineWebber. But he said the long interval was needed “to develop a very substantial case.” Records show that many additional customers complained of being victimized by Davis while the NYSE investigation was pending.
PaineWebber hired Davis even though his record showed that he had been disciplined previously by the NYSE for rule violations. As reported in The Times’ series, the firm kept him on despite a steady stream of complaints, lawsuits and arbitration cases filed against him by customers. The complaints included sworn allegations that Davis had forged customers’ signatures.
In an interview last spring, a senior PaineWebber official said the firm had requested Davis’ resignation in January not because of the complaints or pending NYSE investigation but because Davis had stopped coming to work and was no longer generating commissions for the firm.
Both the NYSE and PaineWebber declined to comment on whether any disciplinary action is contemplated against the branch manager who supervised Davis.
