Felony Strangulation Charge Gets Stockbroker Fined And Suspended

October 19, 2012

Before reading this BrokeAndBroker.com Blog, how about you take a brief test?

  • In 2008 you are charged with a felony.  
  • During the ensuing 2 1/2 years you neither pled guilty to that charge nor were found guilty by a judge or jury.  
  • In May 2011, the charge is dismissed.
QUESTION: What did you need to disclose (or not need to disclose) to FINRA about the dismissed felony charge from 2008 to the present?

Form U4 Question

Ritzer entered the securities industry in 1982 and from the relevant period of 2005 until April 2011, he was registered as both a General Securities Representative and Principal with CRT Capital Group LLC . According to the AWC, Ritzer has no relevant disciplinary history with the Securities and Exchange Commission, any state securities regulator, FINRA, or any other self-regulatory organization.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, Adam Robert Ritzer submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Adam Robert Ritzer, Respondent (AWC 20110267017, October 12, 2012).

The AWC asserts that on December 4, 2008, Ritzer was charged with a felony under Connecticut State law; however, on May 25, 2011, that charge was dismissed.

SIDE BAR: The Uniform Application for Securities Industry Registration of Transfer Form ("Form U4″) contains the following: 

Question 14A(1)(b):"Have you ever been charged with any felony?"

Ritzer's answer of "NO" to the above question constituted his response until his amended "YES" in April 2011 - which was the month prior to the dismissal.  The AWC characterized that changed answer as having been made more than two years late, in violation of Article V, Section 2(c) of the FINRA By-Laws, NASD IM-1000-1 and FINRA Rules 1122 and 2010.

In accordance with the terms of the AWC, FINRA imposed upon Ritzer a $5,000 fine and a 30-day suspension from association with any FINRA member firm in all capacities.

Bill Singer's Comment

December 2008 Felony Charge

According to online FINRA records as of October 19, 2012, Ritzer's December 4, 2008, felony charge was for Strangulation Second Degree to which he pleaded Not Guilty, and the charge was dismissed on September 7, 2011 - which varies from the May 25, 2011, date in the AWC.

December 2010 Felony Charge

In another unrelated incident,  FINRA's online records disclose that on December 13, 2010, Ritzer was charged with the felony of Protective Order Violation, to which he pleaded Not Guilty.  On July 6, 2011, that felony charge was amended to the Misdemeanor Violation of Condition of Release, to which Ritzer pled Guilty and was sentenced to one year in jail, the sentence of which was suspended; and two years probation.

March 2011 Felony Charge

In yet another unrelated incident, FINRA's online records also disclose that on March 30, 2011, Ritzer was charged with the Felony of Violation of Protective Order to which he pled Not Guilty; and this charge was amended on August 4, 2011, to the misdemeanor Violation of Conditions of Release, to which he pled Guilty and received a sentence of  one year in jail, the execution of which was suspended; and two years probation.

SIDE BAR: According to published press reports: "Man charged with violating protective order in Fairfield" (Fairfield Citizen, April 2, 2011), Ritzer had allegedly entered the home of his ex-wife to pick up his children although a protective order at the time purportedly had required him to remain in his car at the end of the driveway during such pick-ups. In addition to entering the home's front foyer, Ritzer allegedly verbally abused his former wife.

Quality of Mercy

FINRA's handling of Ritzer's  non-disclosure of his 2008 felony charge shows marked restraint by the regulator, particularly since the non-disclosure spanned a time of two additional criminal incidents; moreover, there does not appear to have been a finding of willful non-disclosure, which may have led to a statutory disqualification.

Perhaps the self-regulatory organization gave some weight to the subsequent dismissal of the 2008 felony charge and weighed the likely entangled nature of the broker's domestic situation and  his attendant legal problems. Although not stated in the AWC, it appears that Ritzer had timely disclosed the other two felony charges of December 2010 and March 2011; otherwise, I would expect that his non-compliance would have been cited by FINRA in the AWC.

Lessons To Be Learned

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 most Wall 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.

Speed Trap?

BrokeAndBroker.com Blog regularly covers these FINRA U4 criminal disclosure cases. Folks at Merrill Lynch, Morgan 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, it seems that the Form U4 needs to offer more detailed guidance as to what needs to be disclosed.  Having represented many individuals (and spoken to even more) concerning the issues raised in this column, I think that FINRA has, to some degree, created a regulatory speed trap.

Without question - and please note my unequivocal position here - Wall Street regulators, employers, and the public have every right to inquire about felony  and certain relevant misdemeanor charges and convictions.  Similarly, for those with such disclosable criminal histories, the intentional failure to disclose such background raises very troubling concerns.

On the other hand, many folks who run afoul of the criminal justice system wind up with dismissed cases, deferred prosecutions, and expungements - indeed, there are times when the innocent are handcuffed, arraigned, and cleared.  Similarly, most defendants are laypersons with an imperfect understanding as to whether their case was dismissed in a manner that precluded the necessity to subsequently disclose charges or guilty pleas.  These issues become complicated even further by variances among how the states treat dismissals and, yet again, by differences between state and federal criminal practice.

Given my prior career as an attorney with two Wall Street regulatory organizations and as a lawyer in private practice who often represents individuals charged with non-disclosure of criminal histories, I know that a significant number of such cases involve not a desire to cover-up but a simple misunderstanding of FINRA's disclosure requirements - and while ignorance of the law is no excuse, at some point, regulators are on notice that there are too many folks with similar misunderstandings of common issues.

A simple solution would be for FINRA to prominently display an 800 number or email address at which U4 applicants and others could get a good-faith safe-harbor answer from the Staff as to whether a "Yes" or "No" answer is required.  Obviously, FINRA has every right to predicate such an opinion on being provided with an accurate set of facts and the opinion should explicitly note that it is so limited.  The actual opinion may be limited to a written communication that references the fact pattern presented.  If FINRA wants to charge a modest processing fee, go ahead.

To persist in hiding behind the rubric that a regulator can't give "legal advice" but then charge and sanction folks who were befuddled by a sincere misunderstanding is unfair.  Inherent in this recurring criminal disclosure problem is that many respondents in addition to Respondent Ritzer simply don't recognize that there is a disclosable matter because they thought that their case was favorably "closed" or the charges dismissed.

If there had been such an 800 number, perhaps Ritzer would simply have telephoned FINRA and said this is what happened with the charge and my plea, do I have to answer "YES" to either or both?  If such guidance were made prominently available and easily reachable, and an industry applicant did not use the opportunity and failed to properly disclose, I would fully support FINRA's sanctions in such a case; however, note my emphasis on offering guidance that is prominently displayed AND easily reachable.

How fair is fair and simple is simple? For me, just put on the Form U4 a boldfaced notice such as this: