Captain's log Star Date 20191011. We are circling planet FINRA, which is a dangerous place inhabited by a race of treacherous salespersons and their aggressive regulators. They live in an uneasy symbiosis. Before the landing party embarks for that hostile clime, we need to better understand the consequences of our actions when we interact with the denizens of the place. They do not always seem to act logically. What sometimes results in the extreme civil penalty of disqualification from their society, may also result in little more than an obligation to pay a fine in their local currency and sit on a rock for several months and get your mind right -- or so that's how it seems to us as we circle above. Mr. Spock will lead the party down to the surface but he is grousing about how the race of inhabitants are illogical. And he doesn't like illogical. Spock is a very logical fellow. Painfully logical. Frankly, I'm glad to be rid of him for a few days. He's not a party dude if you get my drift; however, I've asked him to look into that binary options deal that was transmitted to us by one of the planet's salespersons. Frankly, it's supposedly guaranteed and I can double my money in one star-date.
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, Chad Andrew Perkins submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Chad Andrew Perkins, Respondent (FINRA AWC 2017052422801)
The AWC asserts that Perkins was first registered in 2005, by 2006 he was first registered with FINRA member firm Money Concepts Capital Corp., and by May 2016, he was registered with FINRA member firm Parkland Securities, LLC. Further, the AWC asserts that "Perkins does not have any disciplinary history with the Securities and Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization"
The Liening Tower
The AWC alleges that the Internal Revenue Service had filed tax liens against Perkins on the dates and for the amounts noted below:
May 2010: $95,000
April 2014: $186,000
December 2015: $116,000
December 2015: $51,000
The Uniform Application for Securities Industry Registration or Transfer (the "Form U4") asks in part [Ed: emphasis added]:
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?
Article V of FINRA's By-Laws states in part [Ed: highlights added]:
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.
FINRA Rule 1122 states in part:
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.
The 2016 U4 Amendment
The AWC alleges that Perkins only first amended his Form U4 in August 2016 to disclose the 2014 and the two 2015 IRS liens referenced above. Thereafter, Perkins entered into an installment payment agreement with the IRS, and the AWC asserts that he is current on his scheduled payments. The AWC alleges, however, that in January 2016, Perkins inaccurately stated on Money Concepts' Annual Compliance Questionnaire ("ACQ") that he was not the subject of any unsatisfied liens.The AWC alleges that Perkins' registration with Parkland ended on October 20, 2017, and he is not currently registered.
FINRA deems Perkins's untimely Form U4 amendments and his misstatement on the ACQ as constituting violations of Article V, Section 2(c) of the FINRA By-Laws, and FINRA Rules 1122 and 2010. The AWC concedes that due to "Parkland's uncertainty about the legitimacy of the 2010 lien, the firm never required Perkins to disclose it," and, as such, the self-regulator did not appear to factor that specific matter into its regulatory violations. There was no finding by FINRA of a willful failure to amend.
In accordance with the terms of the AWC, FINNA imposed upon Perkins a $5,000 fine and a two-month suspension from associating with any FINRA member firm in all capacities.
Bill Singer's Comment
The overwhelming majority of AWCs settling allegations of undisclosed tax liens tend to involve findings of willful non-disclosure -- which results in a statutory disqualification. The Perkins AWC does not. Why? That important question is not answered by the AWC, which is disappointing.
Now please -- and I'm begging you here -- please understand that I am NOT suggesting that Perkins engaged in any willful non-disclosure; and, pointedly, the AWC does not assert that fact. Similarly, I am NOT even remotely suggesting that Perkins should have been charged with willful non-disclosure. Why then, you might wonder, am I complaining about the AWC's failure to explain the absence of a willfulness finding. In large part, I raise the issue because respondents need to understand where FINRA draws its willfulness line. That understanding is necessary in order to enable respondents to more intelligently engage in regulatory settlement negotiations, and, if necessary, to better prepare for a contested regulatory hearing.
Given that non-disclosed/untimely-disclosed tax lien cases often involve an individual in financial straits, such respondents often lack the funds to retain a lawyer and, as such, they represent themselves pro se during FINRA's investigation, settlement negotiations, and, if needed, hearings and appeals. The fact that FINRA did not charge Perkins with willful misconduct is noteworthy because of the existence of several non-disclosured liens over a period of several years. It is likely that Perkins was ably represented by Gary Saretsky, Esq. of Saretsky Hart Michaels & Gould PC http://www.saretsky.com/gary-m-saretsky/ Compliments on a fine job for your client!
The Hidden Consequence of "Willful"
In cases where FINRA Staff negotiates with a pro se registered representative, the initial settlement offer in a tax-lien non-disclosure matter may involve a frightening amount of dollars and months of suspension. It's the stuff designed to scare an individual into quickly settling. For example, Staff could ask for $25,000 in fines and an 18 month suspension. In response to such an initial offer, a pro se stockbroker may panic and beg and plead for some compassion from Staff. After the passage of some time, Staff might come back and reluctantly -- ever so reluctantly -- propose a $5,000 fine and a 30-day suspension. The rep may be elated and emboldened to quickly accept the offer and, further, may congratulate himself on having saved on legal fees. Alas, on the AWC, under the line for the representative's signature, would be this gem:
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.
Many men and women reps who are navigating the AWC process, do so without legal counsel and, as a result, those unrepresented respondents don't quite understand or fully appreciate that after they paid the $5,000 fine and served a 30-day suspension that they are, in effect, barred from the industry as statutorily disqualified for having "willfully omitted to state a material fact on a Form U4." Sure, it's there in the AWC; and, sure, that whole "willful non-disclosure" allegation and finding is very clearly printed in the settlement. On the other hand, consider that a pro se respondent may only be focusing on the fact the he or she dodged that proposed five-figure fine and multi-month suspension. What such a respondent may not comprehend is all that babble and jargon about Section 3(a)(39)(F).
And now we arrive at my point: The AWC should have indicated why it did not deem Perkins's non-disclosures to rise to the level of "willful." The defense bar and pro se respondents need every bit of insight and every bit of information they can get from the self-regulatory organization when one case goes against the grain in such stunning fashion. I'm not trying to criticize or punish FINRA for its compassion and fairness. I'm simply asking that the self-regulatory-organization makes more of an effort to explain its approach to when several non-disclosed events over a period of years will (and will not) rise to the level of a willful non-disclosure. Although I appreciate that such a determination may be fact-dependent and not subject to a clear-cut algorithm, I would similarly note that given that circumstance, it's all the more incumbent upon FINRA to explain why, in a given case that typically would involve a finding of willfulness, that such an charge was not made.