The Shemano Group, Inc. (CRD #35528, San
Francisco, California), William David Corbett (CRD
#1478411, Registered Representative, Belvedere,
California), Michael Keith McDonough (CRD
#1511844, Registered Principal, Alameda,
California) and Gary Jay Shemano (CRD #421322,
Registered Principal, Kentfield, California) submitted
Letters of Acceptance, Waiver and Consent in which the
firm and Shemano were fined $425,000, jointly and
severally. The firm and Shemano were barred from
publishing research reports as the term is defined in
NASD Rule 2711(a), and the firm was required to hire
an independent consultant to review the adequacy of
the firm’s policies, systems, procedures and training.
Shemano was suspended from association with any
NASD member in any capacity for 90 days. Corbett was
fined $150,000 and suspended from association with
any NASD member in any capacity for 60 days.
McDonough was fined $20,000 and suspended from
association with any NASD member as a general
securities principal for nine months. Without admitting
or denying the findings, the respondents consented to
the described sanctions and to the entry of findings that
Shemano sold Corbett’s shares of a publicly traded
company while Corbett was reviewing drafts of a
pending research report on the company that contained
mismanagement allegations, and Corbett, as lead
banker, and McDonough, as Chief Compliance Officer,
failed to detect and prevent the sales. The findings
stated that the firm, Shemano and McDonough failed
to establish, maintain and enforce a system of
supervision and written supervisory procedures
reasonably designed to prevent the misuse of material
and nonpublic information, and to achieve compliance
with applicable securities laws, regulations and NASD
rules. The findings stated that Corbett provided
knowing and substantial assistance to his firm in
violation of its written supervisory procedures. The
findings also stated that Corbett knowingly hired, and
the firm made payments to, an individual for consulting
services relating to the issuance of research reports and
investment banking activities who they knew to be
statutorily disqualified from association with any NASD
member, and failed to report the association to NASD.
The findings also included that the firm published
research reports the barred individual wrote that deleted
material risk disclosures and failed to disclose material
facts, and McDonough failed to supervise the
preparation of the research reports. NASD found that
the firm failed to reasonably supervise the firm’s
research and investment banking departments and the
barred consultant in connection with their activities
relating to the issuance of research reports.
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