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by Bill Singer
by Bill Singer
Willful Nondisclosure Of Judgments Disqualifies MetLife Stockbroker
October 20, 2013
It's never fair to rush to judgment; however, when it comes to disclosing civil judgments, FINRA does have a ticking clock. As reported by BrokeAndBroker, the consequences of late or non-disclosure of liens and judgments can be serious -- if not devastating to a career on Wall Street.
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, Irfan Ahmad Nagi submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Irfan Ahmad Nagi, Respondent (AWC 2011030466701, October 9, 2013). Nagi entered the securities industry in 1999 with MetLife Securities Inc., where he remained until his termination in December 2011.
The AWC alleges that the following five judgments were entered against Nagi for unpaid credit card bills:
1. September 19, 2007: Chase Bank $5,627;2. September 15, 2009: Chase Bank $2,345.25;3. July 13, 2009: RAB Performance Recoveries LLC $7,215.61;4. January 21, 2010, Cach LLC $8,282.55; and5. May 6, 2011, Midland Funding $4,990.95.
Nagi first disclosed the September 19, 2007, Chase judgement on his Uniform Application For Securities Industry Registration Or Transfer ("Form U4") on December 15, 2008. Thereafter, although the AWC asserts that Nagi knew that he was required to timely disclose judgments on his Form U4 and despite receiving ongoing general reminders to that effect from branch management, he failed to comply with his disclosure obligations. Pointedly, the AWC asserts that:
[I]n January 2011, a member of MetLife Securities Corporate Licensing and Registration department emailed Nagi informing him that her department had been notified that his wages were being garnished by Chase Bank and that it appeared to be an event that should have been disclosed on his Form U4. The email also noted that such disclosures were required to be made within 30 days of the event and that Nagi should make that disclosure immediately. . .
According to online FINRA records as of October 21, 2013, MetLife discharged Nagi on November 4, 2011 based upon allegations that:
REGISTERED REPRESENTATIVE DID NOT FOLLOW COMPANY POLICIES WITH RESPECT TO OUTSIDE BUSINESS ACTIVITIES AND DID NOT DISCLOSE REQUIRED INFORMATION ON FORM U-4
Ticking Clock of Disclosure
Article V of FINRA's By-Laws: Registered Representatives and Associated Person, provides as follows:
In addition to the above By-Law provision, FINRA also requires the observance of this rule:Application for RegistrationSec. 2. (a) Application by any person for registration with the Corporation, properly signed by the applicant, shall be made to the Corporation via electronic process or such other process as the Corporation may prescribe, on the form to be prescribed by the Corporation and shall contain:(1) an agreement to comply with the federal securities laws, the rules and regulations thereunder, the rules of the Municipal Securities Rulemaking Board and the Treasury Department, the By-Laws of the Corporation, NASD Regulation, and NASD Dispute Resolution, the Rules of the Corporation, and all rulings, orders, directions, and decisions issued and sanctions imposed under the Rules of the Corporation; and(2) such other reasonable information with respect to the applicant as the Corporation may require.(b) The Corporation shall not approve an application for registration of any person who is not eligible to be an associated person of a member under the provisions of Article III, Section 3.(c) Every application for registration filed with the Corporation shall be kept current at all times by supplementary amendments via electronic process or such other process as the Corporation may prescribe to the original application. Such amendment to the application shall be filed with the Corporation not later than 30 days after learning of the facts or circumstances giving rise to the amendment. If such amendment involves a statutory disqualification as defined in Section 3(a)(39) and Section 15(b)(4) of the Act, such amendment shall be filed not later than ten days after such disqualification occurs.
Finally, the Form U4 asks the following:FINRA Rule 1122. Filing of Misleading Information as to Membership or RegistrationNo member or person associated with a member shall file with FINRA information with respect to membership or registration which is incomplete or inaccurate so as to be misleading, or which could in any way tend to mislead, or fail to correct such filing after notice thereof.
By failing to disclose the September 2007 Chase Bank judgment within 30 days ofthe event, Nagi violated Article V, Section 2(c) of the FINRA By-Laws of the Corporation, NASD Rule IM 1000-1, and NASD Rule 21 1 0. By failing to disclose the four judgments entered against him in 2009 through 201 1 when he knew that judgments were required to be disclosed, Nagi willfully violated Article V, Section 2(c) ofthe FINRA By-Laws of the Corporation, and FINRA Rules 1122 and 2010.Financial Disclosure14K. 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 Investor Protection 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?
FINRA Sanctions
In accordance with the terms of the AWC, FINRA imposed upon Nagi a $5,000 fine and a 3-month suspension from associating with any FINRA member in any capacity. NOTE: By entering into a settlement for the "willful" nondisclosure of the judgments on his Form U4, Nagi is deemed statutorily disqualified.
Bill Singer's Comment
One interesting aspect of this case is that it offers some explanation as to how these non-disclosed matters eventually come to light - or, put another way, the general futility of trying to hide these events from an employer and regulator. In Nagi's case (as is so often how these matters come to light), his financial house of cards eventually collapsed upon him with the imposition of a garnishment of his wages.
What's the big deal with the willful language? Simply stated, a finding of a willful failure to disclose transformed Nagi into someone who was not only suspended for three months and fined $5,000 but, thereafter, statutorily disqualified - effectively barred absent FINRA's permission to return to the biz. This is how that admonition is worded in Nagi's AWC:
I understand that this settlement includes a finding that I willfully omitted to state amaterial fact on a Form U4, and that under Section 3(a)09)(F) ofthe SecuritiesExchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, this omissionmakes me subject to a statutory disqualification with respect to association with amember.
The finding of wilful (intentional) failure to timely disclose a material fact as required on the Form U4 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. Commendably, 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.
Also READ:
- Stockbroker Fined And Suspended For Undisclosed Tax Liens
- Lien, Judgment, Bankruptcy, and Undisclosed Settlement
- Undisclosed Banrkruptcy Petition Strains FINRA's Mercy
- The Form U4 Minefield by Bill Singer
- Real Estate Short Sale Short Circuits Stockbroker
- Untimely Disclosures Of Tax Liens And Bankruptcies
- Tax Liens And Judgments Snare Stockbroker