by Howard Haykin

Kenneth Zegar agreed to pay a $30K fine and serve a 2-month suspension to settle FINRA charges that he misrepresented, or suggested that others misrepresent, to institutional customers who were looking to purchase bond that his firm was working on acquiring  those bonds when, in fact, the firm already owned the bonds in inventory. In settling, Zegar also agreed to re-take the Series 7 (General Securities Rep) Exam upon re-association with a member firm.

BACKGROUND.    Zegar, a resident of New York, NY, has been in the securities industry for 20 years, during which time he’s been associated with 5 firms. From 2008 to present, Zegar was with Jefferies LLC (“JEFF”), serving as Managing Director and trader on the mortgage-backed securities desk. He had no prior disciplinary history.

FINRA FINDINGS.    The Fixed Income Investigations unit of FINRA Market Regulation conducted a review of Zegar's communications with customers and JEFF employees over a 3-year period – 2009 through 2011 - to determine if Zegar made misrepresentations to customers in connection with the purchase, offer or sale of fixed income securities. FINRA found 4 instances where misrepresentations were made.

In 3 of the instances, Zegar made a misrepresentation to a customer:

• Twice misrepresented a price at which JEFF had acquired bonds.    After learning that JEFF had purchased bonds in a bid-wanted-in-competition on behalf of an institutional customer at the customer's bid price, Zegar told the customer that its bid price was not high enough. As a result, the customer ended up paying for the bonds at prices that exceeded its original bid price – and higher than the price at which JEFF actually bought the bonds.  [NOTE:  In a “Bid Wanted In Competition” (BWIC), an institutional investor submits its bond bid list to various securities dealers. Dealers then make bids on the listed securities, and those dealers with the highest bids are then contacted.]

• Once misrepresented that JEFF was working on acquiring bonds.  Zegar misrepresented to a customer who was looking to buy bonds that JEFF was working with a seller of bonds when, in fact, JEFF already owned the bonds. Zegar held the bonds in his inventory account at JEFF but responded to a bid from a potential purchaser by stating, "I have already shown seller 65 and he has passed."

In a 4th instance, Zegar suggested to a fellow Managing Director that he or she misrepresent to a potential bond buyer that JEFF was working the order of a seller for the bonds in question - even though Zegar knew that it already owned the bonds in inventory. 

Zegar' s conduct in all 4 instances constituted separate and distinct violations of FINRA Rule 2010.

This case was reported in FINRA Disciplinary Actions for July 2017.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016049963001.