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Amending Form U4 for Felony Charges and Convictions: One Broker's Tortured Path to FINRA Disciplinary Action
Written: September 5, 2011

For the purpose of settling alleged rule violations and without admitting or denying the findings, Martin J. Erzinger submitted a Letter of Acceptance, Waiver and Consent (“AWC”) to the Financial Industry Regulatory Authority (“FINRA”), which the self-regulatory organization accepted. In the Matter of Martin J. Erzinger, Respondent (FINRA AWC/ 20100239604, August 26, 2011).

Industry Background

Erzinger first became registered in the securities industry in 1980 and his career arc took him from Kidder Peabody, to Smith Barney, to Morgan Stanley Smith Barney (“MSSB”) in June 2009, where he remained until May 31, 2011.

The Arrest

While a financial advisor at MSSB’s Denver branch office, Erzinger was arrested on July 3, 2010, after he hit a cyclist while driving and left the scene of the accident.

Notifying MSSB

Upon his release from police custody, Erzinger telephoned his supervisors to report his arrest. The next business day, Erzinger met with his MSSB supervisors to discuss the incident, and he was reminded to timely update the firm and to provide relevant documents concerning the criminal matter. Up to that point, Erzinger had submitted responsive documents, including an arrest report upon which he disclosed that one of the charges for which he was arrested was a “felony.”

SIDE BAR: The Uniform Application For Securities Industry Registration Or Transfer (“Form U4”) seeks “Yes” or “No” answers to the following questions posed under Item 14: Disclosure Questions: Criminal Disclosure:

14A

(1) Have you ever:
(a) been convicted of or pled guilty or nolo contendere (“no contest”) in a domestic, foreign, or military court to any felony?
(b) been charged with any felony?

(2) Based upon activities that occurred while you exercised control over it, has an organization ever:
(a) been convicted of or pled guilty or nolo contendere (“no contest”) in a domestic or foreign court to any felony?
(b) been charged with any felony?

14B

(1) Have you ever:
(a) been convicted of or pled guilty or nolo contendere (“no contest”) in a domestic, foreign or military court to a misdemeanor involving: investments or an investment-related business or any fraud, false statements or omissions, wrongful taking of property, bribery, perjury, forgery, counterfeiting, extortion, or a conspiracy to commit any of these offenses?
(b) been charged with a misdemeanor specified in 14B(1)(a)?

(2) Based upon activities that occurred while you exercised control over it, has an organization ever:
(a) been convicted of or pled guilty or nolo contendere (“no contest”) in a domestic or foreign court to a misdemeanor specified in 14B(1)(a)?
(b) been charged with a misdemeanor specified in 14B(1)(a)?

NOTE: According to the Definition of Terms supplied with the Form U4, Charged “Means being accused of a crime in a formal complaint, information, or indictment (or equivalent formal charge).”

On July 15, 2010, MSSB’s Registration Department requested documentation pertaining to the criminal matter and specifically asked for signed/sealed court documents as they became available. Erzinger was admonished that it was his responsibility to obtain responsive materials from other sources if he did not have personal possession.

On July 21, 2010, Registration again asked for updates/documents, to which Erzinger replied the following week that his criminal hearing had been deferred until August 10,2010.

On July 26, 2010, MSSB’s Human Resources Department asked Erzinger for a document setting forth the specific charges in order to undertake the requisite regulatory disclosure by month’s end to FINRA. Erzinger provided no additional documents in response to this request.

On July 30, 2010, Erzinger’s attorney forwarded a copy of the official accident report and a printout of an on-line docket report that described the charges on which Erzinger was arrested (which is distinct from charged). However, the attorney’s submissions did not classify the charges as either felonies or misdemeanors. Upon receipt of these documents, MSSB’s Legal Department filed a regulatory document disclosing Erzinger’s arrest on a felony charge.

Criminal Complaint

On August 10, 2010, the Eagle County District Attorney charged Erzinger with:

  • one felony: leaving the scene of an accident involving serious bodily injury; and
  • two misdemeanors arising out of the same accident.

The District Attorney filed a criminal Complaint setting forth the three charges that Erzinger faced; however, about an hour and half later, the District Attorney moved to dismiss the felony charge, which motion the judge granted immediately, leaving only the two misdemeamors. Notwithstanding, for an hour and a half, Erzinger had been charged with a felony.

SIDE BAR: Okay, so, stay with me here. For one brief, shining moment on August 10, 2010, Erzinger was charged in a criminal Complaint with one felony and two misdemeanors. And then, shortly thereafter,  on the same day, he was charged with only two misdemeanors.

Reporting Delay 

On August 12, 2010, Erzinger reported to MSSB that he faced two misdemeanor charges; however, he did not report that he had initially been charged with a felony, albeit for about an hour and one half. Erzinger did not obtain and forward to MSSB a copy of the Complaint in which he was initially charged with a felony.

SIDE BAR: Under FINRA By-Law V, Section 2(c), an individual is under a continuing obligation to timely amend and update their Form U4 – typically within 30 days after “learning of the facts or circumstances giving rise to the amendment.”

MSSB was required to amend Erzinger’s Form U4 within 30 days of Erzinger being charged with a felony. Accordingly, Erzinger’s Form U4 should have been amended to disclose the felony charge no later than September 9, 2010, which was 30 days after the filing of the August 10th Complaint. However, because Erzinger failed to timely provide MSSB with the requested documents, an amended Form U4 was not timely filed.

In the Interim

Between September 13, 2010, and October 13, 2010, MSSB continued to request updates, court documents, and an official transcript. Erzinger replied that the matter would be resolved with a plea and sentence for two misdemeanors. He also confirmed that the request for an official transcript was forwarded to his attorney. Also, Erzinger forwarded a copy of an on-line docket report that set forth the status of the case and identified the charges, including reference to the felony charge and a notation that it was dismissed. However, Erzinger did not provide signed/sealed court documents as initially requested or an official transcript of the court proceeding.

Felony Charge On Again

On October 14, 2010, Erzinger’s MSSB supervisors read a newspaper article that he had been charged with a felony for his failure to remain at the scene of the July 3rd accident. That same day, Erzinger’s attorney forwarded a letter to the MSSB advising the firm that the District Attorney had decided to amend the charges against Erzinger to include a felony count of leaving the scene of an accident involving serious bodily injury.

On October 21,2010, the Court reinstated the felony charge.

Between October 19, 2010 and November 17, 2010, MSSB requested relevant court documents and additional information about the felony. Erzinger provided information related to the proceeding and a communication from the District Attorney to the cyclist, but failed to provide any court documents as requested.

U4 Amended

On November 22, 2010, Erzinger asked MSSB to amend his Form U4 to reflect the felony charge, but in the absence of a copy of the original Complaint, the firm refused submit the amendment — that same day, Erzinger was again asked to provide a copy of the original criminal Complaint, which should be certified, signed, stamped, and/or sealed by the Court.

FINRA By-Law V, Section 2, required that MSSB amend Erzinger’s Form U4 to reflect the reinstatement of the felony charge no later than November 22, 2010. However, as a direct result of Erzinger’s failure to provide MSSB with a copy of the requested court documents, the firm did not timely update his U4 was not timely updated.

SIDE BAR: If you ask me (sure, go ahead, ask me), this is all getting a tad silly. 

If Erzinger is telling MSSB that he has been charged with a felony, I’m not sure why the firm doesn’t simply undertake the amendment.  If the amendment lacks the supporting Complaint,  then why not simply note that fact but ensure that the criminal disclosure is made? 

I mean, seriously, is there some benefit to Erzinger in telling the world that he has been charged with a felony and lying about that fact?  No wonder Wall Street’s regulatory system is a mess. 

Off Again Felony

On December 16, 2010, Erzinger pleaded guilty to two misdemeanors and the District Attorney dismissed the felony charge.

The Court sentenced Erzinger to 45 days of community service and required him to file all securities industry disclosures.

On December 20, 2010, Erzinger forwarded a court-certified copy of the August 10th Complaint and the criminal Information that included the initial felony charge.

On December 22, 2010, MSSB finally amended Erzinger’s Form U4 to disclose that that he had been charged with a felony count. The filing noted that the felony charge was brought and dismissed by the District Attorney on August 10, reinstated on October 21, and ultimately dismissed on December 16, 2010.

Conclusion

For failing to timely update his Form U4 in violation of Article V, Section 2 of the FINRA By-Laws and FINRA Rule 2010, Erzinger was fined $20,000 and suspended for 30 days in all capacities with any FINRA member firm.

Bill Singer’s Half-Hearted Comment

There are so many snotty and sarcastic comments that I would normally make at this point but, frankly, I’m too exhausted trying to set forth in reasonably clear detail just what the hell went on here. 

I would note that Erzinger does not appear to be an attorney and given that fact, I’m not sure that he understood that he had, in fact, been charged with a felony in such a manner that he was required to report that on his Form U4 — which, frankly, is merely an academic debate because Erzinger did report that he had been charged with a felony but MSSB would not file that disclosure in the absence of a copy of the Complaint. Given all the nonsense attendant to the District Attorney’s on-again-off-again felony charge and Erzinger’s apparent efforts to disclose the status of his case, I’m not sure that I would have done much more to him than imposed a $5,000 fine.  None of which has anything remotely to do with the seriousness of leaving the scene of an accident — that criminal case was adjudicated by the criminal justice system and is separate and distinct from the regulatory issue before FINRA.

Sad, isn’t it, that Wall Street’s cops seem to have so much time and resources to dedicate to making sure that a single stockbroker timely discloses a felony count that was dropped before his guilty plea to two misdemeanors was accepted. If only an iota of this same diligence had been brought to bear against Bernie Madoff or the proliferation of subprime slime.  Ah . . . if only.

Learn more about these felony disclosure issues


 
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