Stockbroker Sidesteps Felony But Trips Over Misdemeanor

October 9, 2012

Courtroom in in . The Classical Revival courth...

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, William Mitchell Tillett submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of William Mitchell Tillett, Respondent (AWC 20110274376, October 3, 2012).

In 1985, Tillet first became registered with NYLife Securities LLC , where he remained until he was terminated on September 27, 2011, after the firm became aware that he had been charged with reportable criminal offenses (which he had not timely disclosed). The AWC asserts that Tillet had no prior securities industry disciplinary history. 

Sidestepping the Felony

On January 21,2011, Tillett had been arraigned on a disclosable felony trespassing charge, which NYLife first learned about on March 11, 2011. Beginning March 28, 2011, the firm suspended Tillett and, thereafter, amended his Uniform Application For Securities Industry Registration Or Transfer ("Form U4″) to reflect the felony charge. On June 15, 2011, the felony charge was reduced to a non-reportable summary offense for trespassing and NYLife permitted Tillett  to resume his registered representative position.

Tripping On The Misdemeanor

On September 19,2011, Tillett was charged with the misdemeanor offenses of theft by unlawful taking and theft of services.  NYLife learned about this charge on October 27,2011, and terminated Tillett that day.

SIDE BAR:  According to online FINRA records as of October 9, 2012:

  • On March 11, 2011, Tillett was charged with "criminal trespass- break into structure" in Dauphin County, PA.  On June 15, 2011, he pleaded guilty to the amended charge of "Defiant Trespasser -Title 18 Section 3304B(1)(l)," which was a non-reportable summary offense. He was fined $50 and  required to pay $138.50 in costs.
  • September 19, 2011, Tillett was charged with "Theft Of Services - Acquis Of Service" misdemeanor in Dauphin County, PA.  On November 25, 2011, after having been terminated by NYLife, Tillett pled guilty to "Theft By Unlawful Taking - Movable Property" misdemeanor, for which a $470 fine was imposed.

By The Book

  • FINRA By-Laws Article V, Section 2(c): applications for registration must be kept current at all times and amendments must be filed within 30 days of learning facts or circumstances giving rise to the amendment.
  • FINRA Rule 1122: prohibits associated persons from filing information that is incomplete or inaccurate or failing to amend an incomplete or inaccurate filing after receiving notice of the need for the amendment.
  • FINRA Rule 2010:registered representatives shall observe high standards of commercial honor and just and equitable principles of trade.
  • Form U4 Questions 14A(1) and 14B(1) : require registered representatives to disclose any conviction or charge of a felony or of certain specified misdemeanors (among which are the wrongful taking of property).

The AWC asserted that Tillet had willfully failed to timely disclose the criminal charges against him, in violation of violated FINRA By-Laws Article V, Section 2(c) and FINRA Rules 1122 and 2010. In accordance with the terms of the AWC, FINRA imposed upon Tillet a $5,000 fine and a 6-month suspension. As admonished in the AWC:

Tillett understands this settlement includes a finding that he 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 him subject to a statutory disqualification with respect to association with a member. . .

Bill Singers Comment

For registered persons  and industry applicants, a number of valuable takeaways:

  • If you are "charged" with a crime, reference your Form U4 and determine whether that circumstance requires disclosure.  It is typically best to seek guidance from your criminal lawyer on this issue but be aware that many such practitioners are often unfamiliar with the unique disclosure obligations of the securities industry. The Definitions guidance for the Form U4 offers this definition: "Charged: Means being accused of a crime in a formal complaint, information, or indictment (or equivalent formal charge)."
  • If you are merely arrested, your employer may have far more extensive reporting obligations than those of federal, state, or self-regulatory regulators.  Be careful to differentiate between what you are required to disclose on a form that is filed with a regulator and a form submitted solely to your firm's compliance/legal departments. An arrest without a charge is not a disclosable matter on the Form U4.
  • The failure to timely disclose a criminal event typically cascades because mostWall Street employers require the execution of an annual compliance questionnaire, which typically asks whether you were charged or convicted of a crime during the prior 12 months.  A misstatement on that document will only add to your problems.
  • Finally, your career may be in the balance if FINRA alleges that your failure to disclose was willful: such a finding would deem you statutorily disqualified.

"Street Sweeper" regularly covers these FINRA U4 criminal disclosure cases. Folks at Merrill LynchMorgan Stanley, JP Morgan, Wells Fargo,Citigroup, and other major organizations are just as apt to fall victim to the intricacies of what needs to be disclosed and when as their counterparts at smaller shops.  Moreover, given the frequency with which industry members run afoul of the disclosure obligations for charges and convictions, you must be aware of the events that need to be disclosed and the windows for such disclosure.

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