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, Daniel John Zigo submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Daniel John Zigo, Respondent (AWC 20110274084, February 5, 2013).
Zigo entered the securities industry in 1997 and by 2004, he was registered with Genworth Financial Securities Corporation ("Genworth"), until his March 29, 2011, termination. The AWC asserts that Zigo had no prior relevant disciplinary history.
The AWC alleges that while associated with Genworth during the relevant time between January 2009 and December 2010, Zigo willfully failed to disclose lax liens and judgments totaling $50,234 on his Uniform Application for Securities Industry Registration ("Form U4″), in violation of NASD IM-1000-1 and FINRA Rules 1122 and 2010.
According the the AWC, the following judgments and liens were filed against Zigo in various Michigan courts:
July 21, 2009: $5,995 Internal Revenue Service ("IRS")
August 10, 2009: $791 State of Michigan
January 13, 2009: $6,689
April 14, 2010: $1,210
July 9, 2010: $18,441
September 16, 2010: $ 1,123
September 29, 2010: $12,388
December 16, 2010: $3,588
SIDE BAR: On the Form U4, Question 14M: Do you have any unsatisfied judgments or liens against you?
The AWC alleges that Zigo willfully failed to amend his Form U4 within the requisite 30 days upon learning of the two tax liens and six civil judgments. The AWC asserts that around March 29,2011, Genworth terminated Zigo's employment and filed aUniform Termination Notice for Securities Industry Registration ("Form U5") reporting the reason for termination as: "Failure to respond to firm requests for information regarding IRS levy."
In accordance with the terms of the AWC, FINRA imposed upon Zigo a 4-month suspension from association with any FINRA member in any capacity. Because Zigo had filed for a Chapter 13 bankruptcy on March 13, 2012, the AWC advises that no monetary sanction was assessed. The AWC further admonishes that because the settlement included a finding that Zigo had willfully omitted to state a material fact on a Form U4, that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, he was subject to a statutory disqualification with respect to association with a member.
Howsabout a stroll down Memory Lane, replete with this reminder of the "Financial Disclosures" section of your Form U4:
14K. Within the past 10 years:
(1) have you made a compromise with creditors, filed a bankruptcy petition or been the subject of an involuntary bankruptcy petition?
(2) based upon events that occurred while you exercised control over it, has an organization made a compromise with creditors, filed a bankruptcy petition or been the subject of an involuntary bankruptcy petition?
(3) based upon events that occurred while you exercised control over it, has a broker or dealer been the subject of an involuntary bankruptcy petition, or had a trustee appointed, or had a direct payment procedure initiated under the Securities InvestorProtection Act?
14L. Has a bonding company ever denied, paid out on, or revoked a bond for you?
14M. Do you have any unsatisfied judgments or liens against you?
Lately, FINRA seems to be on a tear when it comes to investigating and charging for the non-disclosure of liens and judgments on the Form U4. If you take a gander at the list of recent "Street Sweeper" articles below on this topic, you'll note a number of recent AWCs. With the the Great Recession's legacy still causing pain, it's no wonder that many registered persons experienced problems paying their bills or taxes. All of which may explain why FINRA is on top of this developing trend and why there seems to be so many cases. Clearly, the answer to this issue for registered persons is not found in untimely or failed disclosure.
Gaming Wall Street‘s disclosure system is not a new compliance problem but it remains a common one. Coming up with strained rationale for non-disclosure is an old dodge. And while this problem often arises among the fringes of the securities industry at lesser and often dubious brokerage firms, this practice also occurs at the big boys, be they Merrill Lynch,Morgan Stanley, UBS, Wells Fargo, Goldman Sachs, or the like. If there's something that someone would prefer to hide, you can bet that a whole batch of ifs, buts, and you could argues bubble to the surface.
I understand that this settlement includes a finding that I 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 makes me subject to a statutory disqualification with respect to association with a member.
If you are found to have willfully (intentionally) failed to timely disclose a material fact 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 have a modest fine and suspension imposed upon you by FINRA but when you attempt to return to work, you learn that your willful misconduct rendered you a statutorily disqualified individual. Beware of this regulatory speed trap!
For those of you who enjoy a good puzzle, here's the language from the cited section of the federal securities exchange act:
(39) A person is subject to a ‘‘statutory disqualification'' with respect to membership or participation in, or association with a member of, a self-regulatory organization, if such person-
. . .
(F) has committed or omitted any act, or is subject to an order or finding, enumerated in subparagraph (D), (E), (H), or (G) of paragraph (4) of section 15(b) of this title, has been convicted of any offense specified in subparagraph (B) of such paragraph (4) or any other felony within ten years of the date of the filing of an application for membership or participation in, or to become associated with a member of, such self- regulatory organization, is enjoined from any action, conduct, or practice specified in subparagraph (C) of such paragraph (4), has willfully made or caused to be made in any application for membership or participation in, or to become associated with a member of, a self-regulatory organization, report required to be filed with a self-regulatory organization, or proceeding before a self-regulatory organization, any statement which was at the time, and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, or has omitted to state in any such application, report, or proceeding any material fact which is required to be stated therein.
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 material event on a Form U4 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 is missed is that the AWC states that you willfully failed to 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. I call this issue a regulatory speed trap because it continues to trip up the unwary. During my career, many industry registered persons have contacted me concerning this very issue - complaining that they were sandbagged. And this anger is not solely directed at FINRA staff but also at the former lawyer.
In many cases, there is a sense that FINRA sucker punched the registered rep by "slipping in" to an AWC or Offer of Settlement seemingly innocuous language about "willful" failure. Time and time again I have heard complaints from folks who became statutorily disqualified that they never, ever thought that by settling with FINRA for a few months of suspension that they had destroyed their careers. FINRA is now including in AWCs the above cited explanation of the consequences of entering into "willful" settlements. Before you sign on the dotted line, read the admonition and make sure that you understand the implication.
In addition to complaints against FINRA staff, those who feel that they entered into settlements without understanding that they had consented to being deemed statutorily disqualified also rage against their in-house legal counsel and independent outside counsel for failing to inform them of this situation. Sometimes I have to recommend that the registered person consult with a legal malpractice lawyer because it is apparent that they were inadequately counseled about this nasty wrinkle - and in some cases it turns out that the lawyer was unfamiliar with this statutory disqualification issue. All of which explains why I regularly publish these cases so as to better inform the industry of these issues.