by Bill Singer
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, Frank Leonard Patti Jr., submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Frank Leonard Patti Jr., Respondent (AWC 2011029677401, August 10, 2012).
Patti first became registered in 1995 as General Securities Representative; and during the relevant period from March 31, 2009, through August 13, 2009, he was registered with Merrill Lynch, Pierce, Fenner, & Smith, Inc. The AWC asserts that Patti had no prior FINRA disciplinary history.
The AWC alleges that around February 4, 2009, Patti filed a personal bankruptcy petition, which was granted on May 12, 2009. Following the filing and grant, Patti failed to disclose those events on his Uniform Application For Securities Industry Registration Or Transfer (“Form U4”) until August 13, 2009. Accordingly, FINRA deemed the faiure to timely disclose the bankruptcy petition on the Form U4 as a violation of FINRA Rule 2010 and NASD IM-1000-1; and imposed upon Patti a $2,500 fine and a 30-business day suspension from association with any FINRA member in any capacity.
Bill Singer’s Comment
Bill Singer
This is neither a particularly interesting nor unusual case — I merely reported it because it offers an often rare opportunity to look at a pristine violation — one that does not have any extenuating issues or additional violations. Consequently, Patti is useful because it sort of answers that oft-asked question: “What am I facing if I don’t timely disclose a bankruptcy?” Apparently, in 2012, FINRA’s gamebook will slap you with a $2,500 fine and a 30-business-day suspension. There’s the proverbial baseline.
SIDE BAR: The one part of this case that still puzzles me is why it took until August 2012 for FINRA to resolve this case. According to the AWC, the bankruptcy occurred in February/May 2009 and the violation was (or should have been detected) in August 2009 when Patti made his belated Form U4 filing. What the hell was going on for the intervening three years? It may be that FINRA only recently detected the violation but since there is no explanation provided in the AWC, I feel it appropriate to raise this issue.
There are hundreds of thousands men and women presently registered on Wall Street — many of whom wrestled with the economic devastation of the Great Recession and found themselves left with no final option other than bankruptcy. That circumstance found its way into the professional and personal lives of folks at small broker-dealers, at indie/regionals, and even at the big boys such as Merrill Lynch,Morgan Stanley, Wachovia, Lehman Brothers, Goldman Sachs, Bear Stearns, JP Morgan, etc. The swath of financial devastation cut during the past several years has shaken many families. As such, if you work on Wall Street and find yourself contemplating bankruptcy, make sure to familiarize yourself with the applicable disclosure rules.
Finally, note that FINRA did not charge Patti with having “willfully” failed to disclose the bankruptcy — if he had settled such a charge, on top of the fine and suspension, he would have been deemed statutorily disqualified. For some guidance on this issue, see, for example:
- “Bankrupt Stockbroker Winds Up Statutorily Disqualified” (Street Sweeper, July 18, 2012)
- “Statutory Disqualification for Undisclosed Tax Liens Sustained by FINRA, SEC, and Federal Court” (Street Sweeper, February 21, 2012) [citing Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965), the Court rejected Tager’s argument that
the broker must have understood that he was violating a particular rule in order to be found to have willfully violated that rule. In doing so, we explained that “[i]t has been uniformly held that ‘willfully’ in this context means intentionally committing the act which constitutes the violation. There is no requirement that the actor also be aware that he is violating one of the Rules or Acts. . .
If you anticipate seeking a discharge in bankruptcy, make sure to review the applicable Form U4 questions (preferably with your bankruptcy attorney):
Financial Disclosure
14K.
Within the past 10 years:
(1) have you made a compromise with creditors, filed a bankruptcy petition or been the subject of an involuntary bankruptcy petition?
(2) based upon events that occurred while you exercised control over it, has an organization made a compromise with creditors, filed a bankruptcy petition or been the subject of an involuntary bankruptcy petition?
(3) based upon events that occurred while you exercised control over it, has a broker or dealer been the subject of an involuntary bankruptcy petition, or had a trustee appointed, or had a direct payment procedure initiated under the Securities Investor Protection Act?