Stockbrokers and investment professionals often believe that by marking transactions "unsolicited," meaning that it was the customer's idea to purchase or sell a particular security insulates or absolves the unscrupulous stockbroker of all civil liability.
FINRA Conduct Rule IM-2310 specifically provides that:
(a) In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.
NASD Manual, FINRA Conduct Rule IM-2310 (CCH 2009)(emphasis added)
The NASD (now FINRA) has consistently stated that "whether a security is recommended does not necessarily depend on the member’s classification of the security as ‘solicited or unsolicited.’" In particular, a transaction will be considered to be recommended when the member brings the specific security to the attention of the customer through any means, including, but not limited to direct telephone communication, the delivery of promotional material through the mail, or the transmission of electronic messages." NASD Notice to Members 96-60 at 473-74 (September 1996).
In 2001, the NASD provided additional guidance as to what constitutes a "recommendation," and stated the determination of whether a recommendation has been made is an objective, rather than a subjective inquiry. An important factor in this regard is whether – given its content, context, and manner of presentation – a particular communication from a broker dealer to a customer reasonably would be viewed as a ‘call to action.’" NASD Notice to Members 01-23 at 2 April 2001.
The New York Stock Exchange, in its interpretation of The New York Stock Exchange Rule 472(j)(1), relating to Recommendations, (as recently incorporated into the FINRA Code), states that:
For purposes of these standards, the term "recommendation" includes any advice, suggestion or other statement, written or oral, that is intended, or can reasonably be expected, to influence a customer to purchase, sell or hold a security.
NYSE Rule Interpretations Rule 472(j)(1)(CCH 2009)
NASD Regulatory and Compliance Alert (Summer 2000)(noting that the more individualized and particular the communication about a security, the closer the communication is to being viewed as a "recommendation.")(quoted in, NASD Notice to Members 01-23 n.11 (April 2001)).
In fact, "mis-marking" or falsely marking order tickets and confirmations as "unsolicited," when actual recommendations are being made in an effort to avoid detection or to circumvent that the application of the suitability rules is a violation of the federal securities laws, and is the frequent subject of regulatory proceedings. See, e.g., In re: Edward A. Griswold, N.Y.S.E. Exchange Panel Decision 00-6 (Jan. 18, 2000)(Ex. N-1); In re: Kenneth M. Cohen, N.Y.S.E. Exchange Panel Decision 04-46 (Mar. 24, 2004)(Ex. N-2); In re: Robert J. Tart, N.Y.S.E. Exchange Panel Decision 08-4 (Feb. 7. 2008)(Ex. N-3); In the Matter of Jack H. Stein, SEC Release No. 47355 (Feb. 10, 2005)(Ex. N-4) In the Matter of James F. Novak, 47 SEC 892 (April 8, 1993)(Ex. N-5).