The Butcher, Baker, Candlestick Maker and Wall Street CPA

January 22, 2015

Ya got your butcher, your baker, your candlestick maker. Ya also got your attorney, accountant, and federal contractor -- and, while you're at it, let's toss in a stockbroker. What the hell do the three characters in a nursery rhyme have to do with a lawyer, CPA, contractor, and stockbroker?  Frankly, if you have to ask that question, you may be setting yourself up for a nasty surprise. Consider the recent disciplinary settlement involving a CPA and registered person.

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, Elliot H. Goldberg submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Elliot H. Goldberg, Respondent (AWC  #2013035038501, January 15, 2015).

CPA

In 1985, Goldberg first became registered and from 2001 to November 2013, he was registered with RDM Investment Services, Inc. Also, Goldberg is purportedly a member of the American Institute of Certified Public Accountants (the "AICPA") and the New York State Society of CPAs (the "NYSS CPAs"); and he is a partner with a New York State accounting firm.

Prior Regulatory History

The AWC asserts that in 1988, following allegations by the NASD that Goldberg and his employer firm sold securities to investors at a time when no registration statement was in effect, Goldberg entered into an Offer of Settlement, which imposed a Censure and a joint/several $5,000 fine with the firm. 

Collateral Damage

Many registered persons are engaged in other professions and careers. In addition to typically requiring notice to your employer of such Outside Business Activities and obtaining approval to pursue same, there are other ramifications inherent in holding down multiple jobs.  Consider the following:

FINRA Conduct Rule 3270. Outside Business Activities of Registered Persons

No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Passive investments and activities subject to the requirements of NASD Rule 3040 shall be exempted from this requirement.

* * * Supplementary Material: * * *

.01 Obligations of Member Receiving Notice. Upon receipt of a written notice under Rule 3270, a member shall consider whether the proposed activity will: (1) interfere with or otherwise compromise the registered person's responsibilities to the member and/or the member's customers or (2) be viewed by customers or the public as part of the member's business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered. Based on the member's review of such factors, the member must evaluate the advisability of imposing specific conditions or limitations on a registered person's outside business activity, including where circumstances warrant, prohibiting the activity. A member also must evaluate the proposed activity to determine whether the activity properly is characterized as an outside business activity or whether it should be treated as an outside securities activity subject to the requirements of NASD Rule 3040. A member must keep a record of its compliance with these obligations with respect to each written notice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1).

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.

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

14F. Have you ever had an authorization to act as an attorney, accountant or federal contractor that was revoked or suspended?

2011 CPA Suspension

The AWC asserts that on August 5, 2011, Goldberg entered into a settlement agreement with AICPA and the NYSS CPAs as a result of allegations of misconduct relating to his audit of a client of his accounting firm; and, accordingly, among other sanctions, he was suspended from membership for one year. 

At the time of his suspension by AICPA/NYSS CPAs, Goldberg was registered with FINRA member firm RDM and required to update his Form U4 within 30 days of the sanction event. 

Out Of Time

The AWC asserts that on December 3, 2013, RDM filed a Uniform Termination Notice for Securities Industry Registration ("Form U5") terminating Goldberg's registration for his alleged failure to disclose a reportable item. 

From Bad To Worse

FINRA deemed Goldberg's non-disclosure to constitute his willful failure to timely disclose the sanctions, in violation of Article V, Section 2(c) of the FINRA By-Laws; FINRA Rule 1122; and  FINRA Rule 2010. In accordance with the terms of the AWC, FINRA imposed upon Goldberg a $5,000 deferred fine and a 6-month suspension from associating with any FINRA member firm in any capacity. The AWC includes the following acknowledgement by Goldberg:

I understand that this settlement includes a finding that I willfully omitted to state a material fact on a Form U4, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, this omission makes me subject to a statutory disqualification with respect to association with a member.

Willful Omission

The finding of willful (intentional) failure to timely disclose a material fact as required on the Form U4 will expose you to a statutory disqualification.  For those of you who enjoy a good puzzle, here's the language from the cited section of the Securities Exchange Act:

(39) A person is subject to a ''statutory disqualification'' with respect to membership or participation in, or association with a member of, a self-regulatory organization, if such person
. . .

(F) has committed or omitted any act, or is subject to an order or finding, enumerated in subparagraph  (D), (E), (H), or (G) of paragraph (4) of section 15(b) of this title, has been convicted of any offense specified in subparagraph (B) of such paragraph (4) or any other felony within ten years of the date of the filing of an application for membership or participation in, or to become associated with a member of, such self-regulatory organization, is enjoined from any action, conduct, or practice specified in subparagraph (C) of such paragraph (4), has willfully made or caused to be made in any application for membership or participation in, or to become associated with a member of, a self-regulatory organization, report required to be filed with a self-regulatory organization, or proceeding before a self-regulatory organization, any statement which was at the time, and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, or has omitted to state in any such application, report, or proceeding any material fact which is required to be stated therein.