A Stockbroker's Undisclosed Arrest Sets Off A Regulatory Cavalcade Of Disaster

June 27, 2012

English: Handcuffs Handcuffed Handcuff Hinge H...

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, Bruce Parish Hutson submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Bruce Parish Hutson, Respondent (AWC 20100239436, June 21, 2012).

Hutson has been a registered representative since 1995; and from December 2000 through July 2012 was registered with Morgan Stanley Smith Barney ("MSSB") and its predecessor firm, Citigroup Global Markets Inc. ("CGMI").  In June 2, 2009, Morgan Stanley & Co., Inc. and CGMI merged certain portions of their businesses to form MSSB. Hutson's  Uniform Termination Notice for Securities Industry Registration ("Form U5″) submitted on August 16, 2010, states that he was voluntarily terminated because MSSB "discovered criminal history information regarding Mr. Hutson which the Firm believed had not been properly reported."

The AWC asserts that Hutson has no prior regulatory history.

The AWC alleges that on April 21, 2009, Hutson was arrested for retail theft based on allegations that he stole merchandise from a retail store in Wisconsin.  Contrary to Firm policy, Hutson did not advise his member firm of the arrest.

SIDE BAR: Although the Uniform Application for Securities Industry Registration or Transfer ("Form U4″) does not require disclosure of a mere "arrest" but contemplates at least a "charge," many industry employers separately require arrest disclosures for in-house purposes.

As these things inevitably involve a twist of fate or some unanticipated quirk in the space-time continuum, Hutson's bad luck had it that following Morgan Stanley's and CGMI's merger to create MSSB, that the new FINRA member firm required its registered persons to be fingerprinted as part of the bulk submission of registrants. Sometime in August 2009, Hutson's fingerprints apparently produced a "hit," which put the firm on notice of the undisclosed April 2009 arrest.

Having been confronted with this criminal event, Hutson allegedly "said that he had not yet been charged and claimed to have no documents to provide to the Firm," and the AWC further asserts that Hutson understood that he was required to provide documents and information as the matter progressed.

A Charged Atmosphere

On January 15, 2010, the District Attorney charged Hutson in a criminal Complaint with a Class A misdemeanor involving retail theft. The District Attorney sent a notice of the Complaint to Hutson via his counsel, but Hutson did not advise the MSSB that he had been so charged. With the situation now clearly elevated from a mere arrest to a charge, Hutson was obligated to timely update his Form U4 (the AWC asserts that the deadline was February 14, 2010).

On February 17, 2010, Hutson pleaded "no contest" and was sentenced to nine months in jail, which sentence was reduced to 12 months probation.  FINRA asserts that Hutson was obligated to update his Form U4 by March 18, 2010, to disclose his misdemeanor theft-related plea, but the registered person apparently again failed to comply.  Moreover, on  May 19, 2010, Hutson completed MSSB's annual compliance questionnaire, on which he denied that he had been become statutorily disqualified or arrested and/or charged with a felony or misdemeanor in the prior 12 months.

Based on the foregoing, Hutson

  • willfully violated Article V, Section 2(c) of FINRA's By-Laws for his failure to disclose his theft-related criminal charge in January 2010 and the plea of "no contest" to a theft-related misdemeanor in February 2010;
  • violated FINRA Rule 2010 on May 19, 2010, when he falsely stated that he had not been charged with a crime in the 12-month period prior to completing the compliance questionnaire; and
  • violated FINRA Rule 2010 by falsely representing on MSSB's annual compliance questionnaire that he had not been charged with a crime in the twelve-month period prior to completing the questionnaire.

In accordance with the terms of the AWC, FINRA imposed upon Hutson a $5,000 fine and a five-month suspension from associating with any FINRA member in any capacity.

SIDE BAR: The willful violation and the plea to the theft-related misdemeanor likely provide independent bases for the imposition of a Statutory Disqualification upon Hutson but this is not specified in the AWC.

Bill Singer's Comment

No, this is not a particularly unique tale and it certainly isn't something that occurs only at MSSB - I've heard similar stories over the years from brokers employed by indie/regional firms all the way up to Goldman Sachs, Merrill Lynch, JP Morgan, and the rest.  Sometimes the issue is drunk driving, drug use, or shoplifting. Sometimes the registered person misunderstood what he needed to disclose and when; and sometimes she misunderstood her lawyer (or the lawyer was unfamiliar with Wall Street's disclosure policies.  All of which explains why I so frequently cover this topic.  It's my lonely battle against ignorance that can destroy an individual's career on Wall Street.

See additional "Street Sweeper" columns discussing the disclosure of criminal events:

FINRA Says It Looked And Quacked Like A Felony And Must Be Disclosed (May 9, 2012) 

Broker Fined and Suspended For Untimely Disclosure Of Felony For Unpaid Child Support (March 26, 2012)

A DWI Nearly Ends Stockbroker's Career (October 10, 2011)

Broker's On Off On Off Felony And His U4 Mess With FINRA(September 2, 2011)