The Dreaded Breathalyzer
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Anne Morton Rauch submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted.In the Matter of Anne Morton Rauch, Respondent (AWC 20100246532, April 25, 2012).
According to the AWC, Rauch was first employed in the securities industry in January 1992 and during the relevant time of January 1, 2008, through October 15, 2010, she was a Wells Fargo employee, largely serving as Wells Fargo's Fund Source Customer Choice mutual fund product manager. The AWC asserts that she had no prior disciplinary history.
On January 18, 2010, Rauch was arrested and charged with a felony DWI in St. Louis County, MO for felony DWI, to which she subsequently pleaded guilty on September 27, 2010.
FINRA By-Law Article V, Section 2(c): An individual is under a continuing obligation to amend and update information required by the Form U4; and such amendments must be filed by the member firm no later than 30 days after learning of the facts or circumstances giving rise to the amendment.
FINRA Rule 1122: No member or person associated with a member shall file with FINRA information with respect to membership or registration which is incomplete or inaccurate so as to be misleading, or which could in any way tend to mislead, or fail to correct such filing after due notice.
Form U4, Question 14A (1) (b): "Have you ever been charged with any felony?"
The AWC alleged that following Rauch's arrest and the filing of the January 18, 2010 felony DWI charge, she was required to cause Wells Fargo to amend her Form U4 by February 18, 2010 (within 30 days of the charge). Additionally, Wells Fargo required Rauch to report any criminal matter; and, in fact, the AWC asserts that she had reported previous misdemeanors. Nowithstanding, Rauch did not disclose the felony charge to Wells Fargo, "even though she spoke to her supervisor while under arrest to explain that she would not be at work that day."
On April 28, 2010, Rauch electronically submitted to Wells Fargo her "Associate Annual Attestation," attesting that she was familiar and in compliance with the firm's procedures, among which was a section titled "Criminal Matters," which stated that "associates must immediately report their involvement in any criminal matter to the Qualified Supervisor, the Legal Department, and the Compliance Department Registration Group." Notwithstanding the submission of her annual attestation, Rauch did not timely report the felony charge and, as a result, her Form U4 remained inaccurate.
After receiving an anonymous tip about Rauch's felony DWI, on October 6, 2010, Wells Fargo filed an amended Form U4 disclosing her felony charge and conviction, which Rauch had never reported during the prior nine months. The firm terminated her shortly thereafter.
The AWC alleged that Rauch had wilfully omitted to state a material fact on her Form U4 in a timely manner, thus violating Article V, Section 2(c) of the FINRA By-laws and FINRA Rules 1122 and 2010. In accordance with the terms of the AWC, FINRA imposed a six-month suspension in all capacities and a $5,000 fine.
Bill Singer's Comment
A number of quick observations.
Reporting Obligation Versus Disqualification
You do not become statutorily disqualified solely based upon a felonycharge - that draconic sanction kicks in when you are convicted of a felony or certain misdemeanors. Nonetheless, the charge does trigger a reporting requirement. This nuance seems to trip up many registered persons: the distinction between a criminal event that necessitates the submission of a notice versus an event that results in you being deemed statutorily disqualified from the industry. Similarly, many brokerage firms require internal disclosure of events and on timelines that differ from those mandated by industry laws and regulations. If you work at large firms such as Merrill Lynch, Morgan Stanley, Goldman Sachs or even indie/regional shops, make sure to familiarize yourself with the employee handbook or personnel policies. Simply following FINRA's rules may not satisfy your employer.
Beware of the regulatory speed trap that exists for those who do not timely disclose reportable events. If you are found to have wilfully (intentionally) failed to timely disclose a criminal charge as required on the Form U4, that conduct can expose you to a statutory disqualification. As such, you wind up with the oddball outcome in which you could be charged with a felony and either plead it down to a non-disqualifying misdemeanor or have the case is dismissed, which would seem wonderful - but for the fact that you now learn that your failure to timely disclose the felony charge was viewed by FINRA as intentional, which makes you a statutorily disqualified individual. Worse, while the disqualification for a felony conviction lasts for only ten years, the wilful disqualification has no such sunset.
SIDE BAR: WARNING!!! Some pro se regulatory respondents and more than a few inexperienced lawyers often find themselves in negotiations with FINRA staff where, for example, a failure to timely disclose a criminal event could have prompted an initial settlement offer from the regulator of, hypothetically, a 1 year suspension and a $20,000 fine. After some grueling negotiations, FINRA may agree to 30 days and $5,000. Wow - you're really, really thrilled. What you don't focus on is that the AWC states that you wilfully failed to timely amend your Form U4. So what, you think: I'm only going to sit down for 30 days and pay a lousy $5,000, all of which I can make up. Think again. When your 30 days are up, you're going to get a nasty surprise because you are now statutorily disqualified.
Prior And Persistent Offenders
Another issue with these DWI felonies is that many defendants are shocked and surprised when they learn about the elevated nature of the charge. After all, they argue, my last few DWI arrests only resulted in a misdemeanor charge. How the hell did this same situation become a felony? In the case of a driver in Rauch's state of Missouri, for example, under 577.023.1 RSMo, a:
- Prior offender is a person who had pleaded guilty to or has been found guilty of one intoxication-related traffic offense within five years
- Persistent offender is a person who has pleaded guilty to or has been found guilty of two or more intoxication related traffic offenses within ten years.
Among the ramifications of such prior/persistent offender status is the charge can be elevated to a Class A Misdemeanor or Class D Felony respectively - each of which involves possible jail time and fines. It appears from online state records that Rauch was charged on January 18, 2010, under the "Persistent Offender" provisions.
See these "Street Sweeper" columns: