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, Keith Dow Powell submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Keith Dow Powell, Respondent (AWC 2011028200201, June 10, 2013).
Powell entered the securities industry in 1991 and between February 2008 and December 3, 2012, he was registered at Waddell & Reed, Inc., from which he voluntarily resigned.
On or about October 5, 2009, Powell entered into a compromise with a creditor in connection with the short sale of real estate he owned that was subject to a $400,000 mortgage. The short sale resulted in a $100,000 deficiency, which was satisfied by a mortgage insurance carrier paying $70,000 and Powell executing an unsecured note for $30,000.
FINRA asserted that Powell was required to update his Uniform Application For Securities Industry Registration Or Transfer (Form U4) within thirty days, or by November 4, 2009, to disclose the compromise.
Four months after the required disclosure date, Wadell & Reed learned of the short sale after a routine review of Powell's credit report; and, thereafter, the firm instructed Powell to amend his U4. On March 18, 2010, Powell filed an amended Form U4 disclosing his October 2009 credit compromise.
Second Mortgage And Credit Cards
Between approximately August and October 2010, Powell compromised a second mortgage on his principal address and three credit card balances in amounts ranging from $6,000 to $150,000. These compromises were required to be reported within thirty days, between September and November 2010; however, Powell failed to file an amended U4 until January 18, 2011.
The AWC alleged that Powell violated 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 upon Powell a $2,500 fine and a 15-business-day suspension from associating with any FINRA registered broker-dealer in any capacity.
Bill Singer's Comment
Although FINRA is on relatively solid ground concerning the untimely U4 updates for the credit card compromises, I'm less comfortable with the short sale -- yes, it is technically a "compromise" but it's one of those things that many folks likely don't think of in that fashion. Keep in mind that by October 2009 when Powell entered into the short sale, the economy was crashing amid the onset of the Great Recession. In those days of near daily panic on Wall Street, it might be understandable if the gears didn't perfectly click in Powell's head and he never had the epiphany that his Form U4 needed to be updated.
To FINRA's credit, there is no charge here of "willful" nondisclosure with its statutory disqualification impact; and, similarly, the $2,500 fine and 15-business-day sanctions are at the relatively low-end of the scale.
For future reference, here is the applicable Form U4 section:
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?