by Bill Singer
Stockbroker's DUI Puts Career In The FINRA Ditch
July 17, 2012
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, Patrick Alan Deramus submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Patrick Alan Deramus, Respondent (AWC 2010024694301, July 11, 2012).
Deramus first became registered in 1987 and in 2005 worked as a registered person at FSC Securities Corporation's ("FSC's") until his May 11, 2010, voluntary resignation. On July 29, 2010, he joined Resource Horizons Group LLC ("Resource"), where he remained until his October 13, 2010, termination. The AWC asserts that Deramus had no relevant prior disciplinary history.
DUI
Bill Singer
During his FSC employment, on or about May 13, 2009, Deramus was arrested for Driving Under the Influence ("DUI") in Hillsborough County, FL; and was thereafter charged with one felony count DUI on May 28, 2009. Deramus pled guilty on or about December 1, 2009, and on January 27, 2010 was sentenced Deramus to a 30-day prison term and 48 months of probation.
Eight months after having been charged with a felony, Deramus, for the first time, notified FSC on February 19, 2010, of the DUI felony charge and guilty plea. On March 12, 2010, FSC filed an amended Form U4 reporting Deramus's felony charge and conviction. Pursuant to Section 3(a)(39) of the Securities Exchange Act of 1934, Deramus was subject to statutory disqualification based upon the felony conviction, and, accordingly, on May 10, 2010, he was permitted to resign.
SIDE BAR: Deramus's conduct allegedly was contrary to several FINRA rules:
Article V, Section 2(c) of the FINRA By-laws: every application for registration filed with FINRA shall be kept current at all times by supplementary amendments. The amendments must be filed not later than 30 days after learning of the facts or circumstances giving rise to the amendment.
NASD IM-1000-1: registered representatives are prohibited from filing registration information with FINRA which is incomplete or inaccurate so as to be misleading, or which could in any way tend to mislead. Registered representatives are also required to correct a filing after notice that it is incomplete or inaccurate. A violation of IM-1000-1 is also a violation of FINRA Rule 2010.
FINRA Rule 2010: registered and associated persons, in the conduct of their business are required to "observe high standards of commercial honor and just and equitable principles of trade."
Article III, Section 4 of the FINRA By-laws (Section 3(a)(39)F of the Securities and Exchange Act of 1934 incorporated by reference). A member who "‘willfully" fails to disclose "‘any material fact which is required to be stated" in an application is "subject to statutory disqualification" from participating in the securities industry.
In violation of the rules cited above, FINRA alleged that Deramus had willfully faile to amend his Uniform Application for Securities Industry Registration or Transfer ("‘Form U4″) to disclose a felony charge. Pursuant to the terms of the AWC, FINRA imposed upon Deramus a $5,000 fine and a 6-month suspension in all capacities with any FINRA regulated firm.
Bill Singer‘s Comment
A number of quick observations about DUI and DWI charges, pleas, and convictions.
Reporting Obligation Versus Disqualification
You do not become statutorily disqualified solely based upon a felony charge- that draconic sanction kicks in when you are convicted of a felony or certain misdemeanors. Nonetheless, any felony charge does trigger a reporting requirement. This nuance seems to trip up many registered persons: the distinction between a criminal event that necessitates the submission of a notice versus an event that results in you being deemed statutorily disqualified from the industry. Similarly, many brokerage firms require internal disclosure of events and on timelines that differ from those mandated by industry laws and regulations. If you work at large firms such asMerrill Lynch, Morgan Stanley, Wells Fargo, Goldman Sachs or even indie/regional shops, make sure to familiarize yourself with the employee handbook or personnel policies. Simply following FINRA's rules may not satisfy your employer.
Wilfully
Beware of the regulatory speed trap that exists for those who do not timely disclose reportable events. If you are found to have wilfully (intentionally) failed to timely disclose a criminal charge as required on the Form U4, that conduct can expose you to a statutory disqualification. As such, you wind up with the oddball outcome in which you could be charged with a felony and either plead it down to a non-disqualifying misdemeanor or have the case dismissed, which would seem wonderful - but for the fact that you now learn that your failure to timely disclose the felony charge was viewed by FINRA as intentional, which makes you a statutorily disqualified individual. Worse, while the disqualification for a felony conviction lasts for only ten years, the wilful disqualification has no such sunset.
SIDE BAR: WARNING!!! Some pro se regulatory respondents and more than a few inexperienced lawyers often find themselves in negotiations with FINRA staff where, for example, a failure to timely disclose a criminal event could have prompted an initial settlement offer from the regulator of, hypothetically, a 1 year suspension and a $20,000 fine. After some grueling negotiations, FINRA may agree to 30 days and $5,000. Wow - you're really, really thrilled. What you don't focus on is that the AWC states that you wilfully failed to timely amend your Form U4. So what, you think: I'm only going to sit down for 30 days and pay a lousy $5,000, all of which I can make up. Think again. When your 30 days are up, you're going to get a nasty surprise because you are now statutorily disqualified.
Prior And Persistent Offenders
Another issue with these DWI / DUI felonies is that many defendants are shocked and surprised when they learn about the elevated nature of the charge. After all, they argue, my last few DWI / DUI arrests only resulted in a misdemeanor charge. How the hell did this same situation become a felony? In some states, there is a distinction drawn among first-time offenders and others. Those individuals with a prior DUI / DWI history may be labelled based upon the frequency and recency of such events. For example:
- Prior offender could be used in some states to denote a person who had pleaded guilty to or has been found guilty of one intoxication-related traffic offense within, say, five years. The qualifying timeframe varies from state to state.
- Persistent offender could be a person who has pleaded guilty to or has been found guilty of two or more intoxication related traffic offenses within ten years.The number of qualifying offenses and the timeframe varies from state to state.
Among the ramifications of such prior/persistent offender status is that the current event could result in a charge being elevated from a Misdemeanor or lower class Felony, to a Felony or higher class Felony, respectively - each of which could involve possible jail time and fines. Make sure to consult with competent legal counsel concerning these issues, and make sure to consider the impact of any proposed disposition of your case on your ability to retain your securities industry registrations.