January 16, 2015
It's bad enough when your affairs have gotten so dire that you are required to file for bankruptcy. Thankfully, the laws are somewhat forgiving and seem largely designed to help folks piece their shattered lives together and get a fresh start. The devastation of the Great Recession still lives with us to that extent. On the other hand, just when you think you've gotten out of the mess and put your life back together, the intricacies and vagaries of Wall Street's regulatory scheme may bite you in the ass. Consider this recent case in which one registered person failed to timely disclose his bankruptcy filing.
Case In Point
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, [Ed: Name redacted in the sole discretion of BrokeAndBroker.com] submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of [Ed: Name redacted in the sole discretion of BrokeAndBroker.com], Respondent (AWC #20140398943-01, January 6, 2015).
Respondent commenced his employment with FINRA member firm Livingston Securities, LLC in May 2012 and first became registered with the firm on June 25, 2012.The AWC asserts that he had no prior disciplinary history with the Securities and Exchange Commission, FINRA, any other self-regulatory organization or any state securities regulator.
The AWC asserts that on June 25, 2012, Respondentfiled a petition for voluntary Chapter 7 bankruptcy in the United States Bankruptcy Court in the Eastern District of New York. That action set in motion a number of applicable FINRA rules and regulations, which we consider below:
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 also requires the observance of this rule:
FINRA Rule 1122. Filing of Misleading Information as to Membership or Registration
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.
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?
A Matter Of Termination
The AWC asserts that:
Livingston filed a Uniform Termination Notice for Securities Industry Registration ('*Form U5") disclosing that [Ed: Name redacted in the sole discretion of BrokeAndBroker.com] registration had been discharged on January 9, 2014 in connection with his failure to disclose a bankruptcy. . .
SIDE BAR: As of January 16, 2015, FINRA's online BrokerCheck records do not disclose that Livingston "Discharged" Respondent. Consequently, the AWC may be in error on this point if the implication is that the registered person was "Discharged" in contradistinction to "Voluntary Resignation" or "Permitted to Resign;" or the online records may be lagging and will be updated to more accurately reflect the circumstances. Another plausible explanation is that FINRA erroneously and/or inartfully asserted in the AWC that Respondent's registration had been "Discharged" when the self-regulatory organization should have said that his registration was "Terminated."
Adding Up The Damage
The AWC alleges that in violation of Article V, Section 2 (c) of the FINRA By-Laws, and FINRA Rules 1122 and 2010, Respondent failed to amend his Form U4 to report that he had filed for bankruptcy.
In accordance with the terms of the AWC, FINRA imposed upon Respondent a $2,500 fine and a 30-business-day suspension from association with any FINRA member firm in any capacity.
Bill Singer's Comment
Yes, I understand that Respondent should have updated his Form U4 in July 2012, and that his failure to timely satisfy that disclosure obligation was a violation -- in fact, I even appreciate the need for such a report (so there!).
What I'm not quite understanding is since he was terminated by his employer for the non-disclosure in January 2014, how come it took FINRA about a year to resolve this slam dunk of a regulatory matter? The regulator needed 12 months to do what exactly? Also, taken into consideration that Respondent appears to have represented himself (pro se . . . as in without legal counsel) for the AWC settlement, which may have allowed the regulator to bulldoze him.
Finally, the AWC is more or less a settlement that Respondent agreed to; consequently, if he was happy sitting down for 30 business days and paying a $2,500 fine, who the hell am I to second guess him. On the other hand, really? I mean, geez, this is a case that largely stems from a personal bankruptcy and FINRA desperately needed $2,500 from a guy who was broke a couple of years ago -- as if the significant suspension wasn't enough here?
Oh, and one last thing, did FINRA really need to get in another shot in the form of extending the more typical 30 calendar day suspension to that of 30 business days? What exactly was the regulator's rationale here: Respondent agreed to the settlement and, after all, he didn't have an attorney so if you can take advantage of the opportunity, why not? Clearly, having Respondent sit in the penalty box for six weeks of five business days each is a major difference from a mere 30 days (he says with dripping sarcasm and a robust tinge of disgust).