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Stockbroker Sanctioned For Nondisclosure Of Expunged Criminal Charges
Written: October 1, 2012

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, Ryan B. Braun submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Ryan B. Braun, Respondent (AWC 2011029295, September 25, 2012).

On November 12, 2002, Braun had been charged by the State of Illinois with a felony. On April 10, 2003, Braun pled guilty to the felony charge.

On August 5, 2011, Braun completed and signed a Uniform Application for Securities Industry Registration or Transfer (“Form U4”) through Ameriprise Financial Services, Inc.  He answered “NO” to: 

  • Question 14A(1)(a): “Have you ever been convicted of or pled guilty or nolo contendere (“no contest”) in a domestic foreign or military court to any felony?”
  • Question 14A(1)(b): ”Have you ever been charged with any felony?”

Yes???

On or about August 12, 2011, as a result of Ameriprise submitting Bruin’s fingerprints to FINRA, Ameriprise received a report from the U.S. Department of Justice indicating that Braun had previously been arrested on five charges.  On August 25, 2011, Braun was terminated from Ameriprise for failing to disclose his criminal history on his Form U4.

Up to this point, Braun’s case seems fairly open and shut. He had been charged with a felony but did not so disclose that on the U4; and he had pleaded guilty to a felony but did not so disclose that on the U4, in apparent violation of FINRA Conduct Rule 2010, FINRA Rule 1122, and Article V, Section 2 of the FINRA By-Laws.

Unfortunately, few things in life are ever open-and-shut simple. 

Yes but???

The AWC informs us that although Braun’s “felony and misdemeanor charges were later expunged, Braun’s U4 was not accurate when it was filed.”

According to the terms of the AWC, FINRA imposed upon Braun a $5,000 fine and a  30-day suspension in all capacities with any FINRA member firm

Bill Singer's Comment

Keeping things in proper perspective, FINRA’s sanctions upon Braun are relatively moderate for the twin failures of disclosure of a felony charge and plea — all of which suggests that the self-regulatory organization gave some weight to the subsequent dismissal of all charges.

For registered persons  and industry applicants, a number of valuable takeaways:

  • If you are “charged” with a crime, reference your Form U4 and determine whether that circumstance requires disclosure.  It is typically best to seek guidance from your criminal lawyer on this issue but be aware that many such practitioners are often unfamiliar with the unique disclosure obligations of the securities industry. The Definitions guidance for the Form U4 offers this definition: “Charged: Means being accused of a crime in a formal complaint, information, or indictment (or equivalent formal charge).”
  • If you are merely arrested, your employer may have far more extensive reporting obligations than those of federal, state, or self-regulatory regulators.  Be careful to differentiate between what you are required to disclose on a form that is filed with a regulator and a form submitted solely to your firm’s compliance/legal departments. An arrest without a charge is not a disclosable matter on the Form U4.
  • The failure to timely disclose a criminal event typically cascades because most Wall Street employers require the execution of an annual compliance questionnaire, which typically asks whether you were charged or convicted of a crime during the prior 12 months.  A misstatement on that document will only add to your problems.
  • Finally, your career may be in the balance if FINRA alleges that your failure to disclose was willful: such a finding would deem you statutorily disqualified.

BrokeAndBroker regularly covers these FINRA U4 criminal disclosure cases. Folks at Merrill Lynch, Morgan Stanley, JP Morgan, Wells Fargo,Citigroup, and other major organizations are just as apt to fall victim to the intricacies of what needs to be disclosed and when as their counterparts at smaller shops.  Moreover, given the frequency with which industry members run afoul of the disclosure obligations for charges and convictions, it seems that the Form U4 needs to offer more detailed guidance as to what needs to be disclosed.  Having represented many individuals (and spoken to even more) concerning the issues raised in this column, I think that FINRA has, to some degree, created a regulatory speed trap.

Without question — and please note my unequivocal position here — Wall Street regulators, employers, and the public have every right to inquire about felony  and certain relevant misdemeanor charges and convictions.  Similarly, for those with such disclosable criminal histories, the intentional failure to disclose such background raises very troubling concerns.

On the other hand, many folks who run afoul of the criminal justice system wind up with dismissed cases, deferred prosecutions, and expungements — indeed, there are times when the innocent are handcuffed, arraigned, and cleared.  Similarly, most defendants are laypersons with an imperfect understanding as to whether their case was dismissed in a manner that precluded the necessity to subsequently disclose charges or guilty pleas.  These issues become complicated even further by variances among how the states treat dismissals and, yet again, by differences between state and federal criminal practice.

Given my prior career as an attorney with two Wall Street regulatory organizations and as a lawyer in private practice who often represents individuals charged with non-disclosure of criminal histories, I know that a significant number of such cases involve not a desire to cover-up but a simple misunderstanding of FINRA’s disclosure requirements — and while ignorance of the law is no excuse, at some point, regulators are on notice that there are too many folks with similar misunderstandings of common issues.

A simple solution would be for FINRA to prominently display an 800 number or email address at which U4 applicants and others could get a good-faith safe-harbor answer from the Staff as to whether a “Yes” or “No” answer is required.  Obviously, FINRA has every right to predicate such an opinion on being provided with an accurate set of facts and the opinion should explicitly note that it is so limited.  The actual opinion may be limited to a written communication that references the fact pattern presented.  If FINRA wants to charge a modest processing fee, go ahead.

To persist in hiding behind the rubric that a regulator can’t give “legal advice” but then charge and sanction folks who were befuddled by a sincere misunderstanding is unfair.  Inherent in this recurring criminal disclosure problem is that many respondents in addition to Respondent Braun simply don’t recognize that there is a disclosable matter because they thought that their case was favorably “closed” or the charges dismissed.

If there had been such an 800 number, perhaps Braun would simply have telephoned FINRA and said this is what happened with the charge and my plea, do I have to answer “YES” to either or both?  If such guidance were made prominently available and easily reachable, and an industry applicant did not use the opportunity and failed to properly disclose, I would fully support FINRA’s sanctions in such a case; however, note my emphasis on offering guidance that is prominently displayed AND easily reachable.

How fair is fair and simple is simple? For me, just put on the Form U4 a boldfaced notice such as this:

FAILURE TO ACCURATELY ANSWER CRIMINAL HISTORY QUESTIONS MAY RESULT IN THE IMPOSITION OF FINES AND SUSPENSIONS, INCLUDING BARS.  IF YOU HAVE A DISCLOSURE QUESTION, TELEPHONE FINRA’S “CRIMINAL HISTORY” HOTLINE AT 800-xxx-xxxx OR EMAIL CrimHot@FINRA.org. FOR MORE DETAILS VISIT THE FREQUENTLY ASKED QUESTIONS PAGE AT FINRA.ORG/CRIMINAL HISTORY FAQ.

For more background on criminal disclosure issues, READ:


 
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