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FINRA Says Stockbroker Willfully Failed To Disclose Bankruptcy
Written: August 17, 2012

English: Part of Title 11 of the United States...

Part of Title 11 of the United States Code (the Bankruptcy Code)

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, Eric Emslie submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Eric Emslie, Respondent(AWC 20110302686 01, August 14, 2012).

He Gets Around

Emslie first became registered as a General Securities Representative in 1999 and, thereafter, became registered with about 27 other FINRA member firms including:

  1. 1/13/2010 – 3/9/2010: Chelsea Financial Services
  2. 3/22/2010 – 5//2010: Blackbook Capital LLC
  3. 5/27/2010 – 10/5/2010: Aegis Capital Corp
  4. 9/29/2011 – 10/4/2011: ICM Capital Markets Ltd

The AWC alleges that Emslie had no prior disciplinary history.

2004 Bankruptcy

Around December 6, 2004, Emslie filed a bankruptcy petition, and was granted a discharge about March 28, 2005.

While at the four FINRA member firms noted above, Emslie completed a his Uniform Application for Securities Industry Registration or Transfer (“Form U4″)for each employer on which he answered “NO” to:

Question 14K(1) which asks: “[w]ithin the past 10 years: have you made a compromise with creditors, filed a bankruptcy petition or been the subject of an involuntary bankruptcy petition?”

Willful

Rather than a mere oversight or inadvertent omission, the AWC alleges that Emslie willfullyfailed to disclose the material fact of the bankruptcy petition on his Forms U4, in contravention of Article V, Section 2 of the FINRA By-Laws and wilfull violation of NASD Membership and Registration IM-1000-1, NASD Conduct Rule 2110, and FINRA Rules 1122, and 2010.  In accordance with the terms of the AWC, FINRA imposed upon Emslie a $5,000 fine and a three-month suspension in any and all capacities from association with any FINRA member firm.

Bill Singer‘s Comment

Here we go again. Another bankruptcy. Another late or failed U4 disclosure. Another battle over whether it was inadvertent or intentional — leading to a finding of “willfulness” and the resulting statutory disqualification.

Beware of the regulatory speed trap that exists for those who do not timely disclose reportable events.  If you are found to have wilLfully (intentionally) failed to timely disclose a material fact 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 have a modest fine and suspension imposed upon you by FINRA but when you attempt to return to work, you learn that your willful misconduct rendered you a statutorily disqualified individual.

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 material event on a Form U4 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 is missed is that the AWC states that you willfully failed to 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.

I call this issues a regulatory speed trap because it continues to trip up the unwary.  During my career, many industry registered persons have contacted me concerning this very issue.  More often than not, a former employee of Merrill Lynch, Smith Barney, Morgan Stanley, JP Morgan, UBS, or any other number of large and small firms feels that they were sandbagged.  And this anger is not solely directed at FINRA staff but also at the former lawyer.

In many cases, there is a sense that FINRA sucker punched the registered rep by “slipping in” to an AWC or Offer of Settlement seemingly innocuous language about “willful” failure.  Time and time again I have heard complaints from folks who became statutorily disqualified that they never, ever thought that by settling with FINRA that they had so destroyed their careers.  A simple and fair solution to this ongoing issue would be for FINRA to mandate that its staff provide a one page, boldfaced notice attendant to all “willful” settlements that the registered person affirms that by signing the AWC or Offer of Settlement that the finding of willful misconduct constitutes a statutory disqualification.

In addition to complaints against FINRA staff, those who feel that they entered into settlements without understanding that they had consented to being deemed statutorily disqualified also rage against their in-house legal counsel and independent outside counsel for failing to inform them of this situation.  Sometimes I have to recommend that the registered person consult with a legal malpractice lawyer because it is apparent that they were inadequately counseled about this nasty wrinkle — and in some cases it turns out that the lawyer was unfamiliar with this statutory disqualification issue.  All of which explains why I regularly publish these cases so as to better inform the industry of these issues.

Bankrupt Stockbroker Winds Up Statutorily Disqualified

Statutory Disqualification for Undisclosed Tax Liens Sustained by FINRA, SEC, and Federal Court

Broker Fined And Suspended For U4 Tax Lien, Credit, and License Disclosures


 
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