Untimely Disclosed Tax Liens Earn Broker Fine and Suspension

February 3, 2014

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, Scott A. Brooks submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Scott A. Brooks, Respondent (AWC 2012033368401, January 29, 2014).  

Brooks was first registered in 1996 with FINRA member firm Ameriprise Financial Services, Inc. The AWC asserts that he had no prior relevant disciplinary history. 

Out of Sight, Out Of Mind?

The AWC asserts that starting around February 2010, Brooks was involved in settlement negotiations with the Internal Revenue Service ("IRS") concerning his failure to file tax returns for 2000 through 2009. Although he purportedly received letters from  the IRS during  the settlement negotiations, Brooks apparently declined to open what he deemed to be mere collection letters sent during the negotiations. 

Lien On Me

Although it is unclear as to whether the settlement discussions failed, ultimately, the IRS did file the following tax liens:
  • November 3, 2010: $433,897.31 (tax years 2000 to 2004 and for 2009); 
  • March 24, 2011: $497,394.75 (tax years 2005 to 2008)
The AWC asserts that notwithstanding the 2010 and 2011 dates of the IRS lien filings, Brooks apparently did not learn of them until August 17, 2012. Thereafter, about 13 months later, on September 17, 2013, Brooks' Uniform Application For Securities Industry Registration Or Transfer ("Form U4") was amended  to  report the  tax liens. 

Ticking Clock of Disclosure

Article V of FINRA's By-Laws: Registered Representatives and Associated Person, provides as follows:

Application for Registration

Sec. 2.  (a) Application by any person for registration with the Corporation, properly signed by the applicant, shall be made to the Corporation via electronic process or such other process as the Corporation may prescribe, on the form to be prescribed by the Corporation and shall contain:
(1) an agreement to comply with the federal securities laws, the rules and regulations thereunder, the rules of the Municipal Securities Rulemaking Board and the Treasury Department, the By-Laws of the Corporation, NASD Regulation, and NASD Dispute Resolution, the Rules of the Corporation, and all rulings, orders, directions, and decisions issued and sanctions imposed under the Rules of the Corporation; and
(2) such other reasonable information with respect to the applicant as the Corporation may require.
(b) The Corporation shall not approve an application for registration of any person who is not eligible to be an associated person of a member under the provisions of Article III, Section 3.
(c) Every application for registration filed with the Corporation shall be kept current at all times by supplementary amendments via electronic process or such other process as the Corporation may prescribe to the original application. Such amendment to the application shall be filed with the Corporation not later than 30 days after learning of the facts or circumstances giving rise to the amendment. If such amendment involves a statutory disqualification as defined in Section 3(a)(39) and Section 15(b)(4) of the Act, such amendment shall be filed not later than ten days after such disqualification occurs. 

In addition to the above By-Law provision, FINRA Rule 1122. Filing of Misleading Information as to Membership or Registration, provides:

No member or person associated with a member shall file with FINRA information with respect to membership or registration which is incomplete or inaccurate so as to be misleading, or which could in any way tend to mislead, or fail to correct such filing after notice thereof.

Finally, the Uniform Application For Securities Industry Registration Or Transfer ("Form U4") asks the following:

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?

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?

According to the AWC, Brooks failed to "fully  investigate and understand  the nature of the IRS proceedings against him." Moreover, he failed to timely amend his Form U4 to disclose the IRS  tax  liens constitute violations of Article V, Section 2(c) of FINRA By-Laws and FINRA Rules 1122 and 2010."

In accordance with the terms of the AWC, FINRA imposed upon Brooks a $5,000 fine and a 40-calendar-day suspension from associating with  any FINRA member  firm  in  any capacity. 

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