Another year and, yup, another batch of FINRA cases involving the disclosure of tax liens. Just to remind you of the need to disclose these matters, let's start off 2013 with another example.
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, Jon David McKnight submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted.In the Matter of Jon David McKnight, Respondent (AWC 2012034149901, December 31, 2012).
McKnight, an industry veteran since 1991, was registered during the times relevant to this AWC with LPL Financial LLC. In January 2004, the Internal Revenue Service filed a $38,225 federal tax lien against McKnight, and that lien remained unsatisfied until December 23, 2011 - and, at times, had reached as high as $60,892.83.
In violation of NASD Conduct Rule 2110 (for conduct before December 15, 2008), NASD IM-1000-1 (for conduct before August 17,2009), and FINRA Rules 2010 (for conduct after December 14,2008) and 1122 (for conduct after August 16,2009), Knight failed to timely amends hisUniform Application For Securities Industry Registration Or Transfer ("Form U4") to disclose the tax liens.
Pursuant to the terms of the AWC, FINRA imposed upon Knight the sanctions of a $5,000 fine and a 20-business-day suspension from association with any member of FINRA in any capacity.
Given that it's the New Year and all of that, how about I stroll y'all down Memory Lane and offer you this reminder of the "Financial Disclosures" section of your Form U4:
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?
14L. Has a bonding company ever denied, paid out on, or revoked a bond for you?
14M. Do you have any unsatisfied judgments or liens against you?
Lately, FINRA seems to be on a tear when it comes to investigating and charging for the non-disclosure of liens and judgments on the Form U4. If you take a gander at the list of recent "Street Sweeper" articles below on this topic, you'll note a number of recent AWCs. With the the Great Recession's legacy still causing pain, it's no wonder that many registered persons experienced problems paying their bills or taxes. All of which may explain why FINRA is on top of this developing trend and why there seems to be so many cases. Clearly, the answer to this issue for registered persons is not found in untimely or failed disclosure.
Gaming Wall Street's disclosure system is not a new compliance problem but it remains a common one. Coming up with strained rationale for non-disclosure is an old dodge. And while this problem often arises among the fringes of the securities industry at lesser and often dubious brokerage firms, this practice also occurs at the big boys, be they Merrill Lynch,Morgan Stanley, UBS, Wells Fargo, Goldman Sachs, or the like. If there's something that someone would prefer to hide, you can bet that a whole batch of ifs, buts, and you could argues bubble to the surface.