November 11, 2016
Among the most common FINRA regulatory matters that are presented in the BrokeAndBroker.com Blog are those involving registered representative's failures to disclose (or to timely disclose) matters on their Form U4. As noted in the blog by author Bill Singer, Esq., a non-disclosure allegation by FINRA takes on even greater dimension when the regulator asserts that the failure was willful because such a finding would render the respondent statutorily discharged. In recent years, it seems that the overwhelming majority of non-disclosure cases, particularly those involving criminal charges and tax liens, are settled with the finding of "willful," which is why today's featured FINRA settlement is so fascinating: There is no finding of willfulness despite a fact pattern disclosing multiple failures to timely disclose tax liens.
Case In Point
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, Amy M. Greenberg submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Amy M. Greenberg, Respondent (AWC 2015043643901, November 4, 2016).
The AWC asserts the following under the heading "BACKGROUND":
Greenberg first became registered with FTNRA as a General Securities Representative (''GSR")through an association with a FINRA member firm in October 1990. She has been associated with three other member firms since that time.
Since January 2005, Greenberg has been registered as a GSR through an association with Henley &. Company LLC.
SIDE BAR: According to online FINRA BrokerCheck records as of November 11, 2016, in contradistinction to the AWC's assertions, Greenberg's "Registration History" states that she was first registered in February 1992 with Prudential Securities Incorporated. That 1992 date is consistent with the dates on which she is indicated as having passed her "General Securities Representative" examination on February 24, 1992. It may be that the AWC's reference to Greenberg's October 1990 "association" involved a non-registered employment capacity but such is not confirmed by BrokerCheck, which only discloses "up to 10 years of an individual broker's employment history."
Three Tax Liens
In pertinent part, the AWC asserts the following "FACTS AND VIOLATIVE CONDUCT":
Between April 2010 and December 1022, the Internal Revenue Service (the "IRS") filed three tax liens against Greenberg for unpaid taxes. Specifically, on April 14, 2010, April 19, 2011 and December 19, 2011, the IRS filed tax liens in the amounts of $87,441.39, $63,136.01 and $83,171.17. respectively. The tax liens required disclosure on Greenberg's Form U4 beginning 30 days after Respondent learned the facts and circumstances giving rise to the amendment; however, Greenberg did not disclose the liens on her Form U4 until April 2, 2015. Respondent should have updated her response to Question 14M of the Form U4 within 30 days of learning of the filing of each of the above-referenced tax liens.
As a result of the foregoing. Greenberg failed to timely disclose three tax liens totaling $233,748.57 on her Form U4 in violation of Article V, Section 2(c) of F[NRA's By-Laws and FINRA Rules 1122 and 2010.
In accordance with the terms of the AWC, FINRA imposed upon Greenberg a $5,000 fine and a three-month suspension with any FINRA member firm in any and all capacities .
Bill Singer's Comment
Greenberg's BrokerCheck records disclose under the heading "Judgment/Lien" five separate disclosures:
- On May 1, 2010, IRS filed a Tax Lien for $89,179.86
- On May 1, 2011, IRS filed a Tax Lien for $74,680.09
- On January 1, 2012, IRS filed a Tax Lien for $86,717.10
- On January 1, 2010, the Small Business Administration filed a "Judgment/Lien" for $349,000
- On January 1, 2014, Sachs 5th Avenue - JH Portfolio Debt Equities filed a "Judgment/Lien" for $2,797
As her "Broker Statement" concerning the above five disclosures, Greenberg stated:
REPRESENTATIVE PROVIDED AN ANNUAL CERTIFICATION FOR ALL PREVIOUS YEARS THAT DID NOT DISCLOSE THIS ITEM. ON MARCH 3, 2015, IN COMPLETING THE CERTIFICATION COVERING 2014 THE REPRESENTATIVE DISCLOSED TO HENLEY'S COMPLIANCE DEPARTMENT THE EXISTANCE [sic] OF THIS ITEM. THIS REPORT IS BEING FILED WITHIN THIRTY DAYS OF THE DATE OF DISCOVERY
Why was there no finding of willful non-disclosure of the three tax liens, which should have exposed Greenberg to a statutory disqualification?
As many veteran industry lawyers such a I can attest, the overwhelming majority of undisclosed tax lien AWCs seem to involve findings of willful non-disclosure. The Greenberg AWC does not. Why? That important question is not answered by the AWC, which is disappointing.
Now please -- and I'm begging you here -- please understand that I am NOT suggesting that Greenberg engaged in any willful non-disclosure; and, pointedly, I am not making such an allegation because the AWC does not assert that fact. Similarly, I am NOT even remotely suggesting that Greenberg should have been charged with willful non-disclosure.
Why does this lack of a fact pattern and rationale in the AWC matter? In large part because respondents need to understand where that willfulness line is drawn so as to better participate in regulatory settlement negotiations and, if such negotiations do not seem fair, to better prepare for a regulatory hearing. It boils down to clearly conveying a regulator's perception of where that all-important line is drawn and when. Frankly, it's about consistency and notice.
How do things often proceed after FINRA has notified a respondent that its Staff believes a failure to disclose has occurred? In many cases, FINRA Staff negotiates with a pro se registered representative and the initial settlement offer for the non-disclosure may ask for a frightening amount of dollars and months; for example, Staff could ask for $25,000 in fines and an 18 month suspension. In response to such an initial offer, a pro se stockbroker may panic and beg and plead for some compassion from Staff. After the passage of some time, Staff might come back and reluctantly -- ever so reluctantly -- propose a $5,000 fine and a 30-day suspension. The representative may be elated and emboldened to quickly accept the offer and, further, may congratulate himself on having saved on legal fees. Alas, on the AWC, under the line for the representative's signature, would be this gem:
I understand that this settlement includes a finding that 1 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 me subject to a statutory disqualification with respect to association with a member.
In Respondent Greenberg's case, she seems to have been incredibly well represented by her legal counsel: Timothy Feil, Esq., Finkelstein & Feil. P.C. Unfortunately, a lot of respondents who are navigating the AWC process, do so without legal counsel and, as a result, those unrepresented respondents don't quite understand or fully appreciate that after they paid the $5,000 fine and served a 30-day suspension that they are, in effect, barred from the industry as statutorily disqualified for having "willfully omitted to state a material fact on a Form U4." Sure, it's there in the AWC; and, sure, that whole "willful non-disclosure" allegation and finding is very clearly printed in the settlement. On the other hand, consider that a pro se respondent may only be focusing on the fact the he or she dodged that five-figure fine and multi-month suspension. What such a respondent may not comprehend is all that babble and jargon about Section 3(a)(39)(F).
And now we arrive at my point: The AWC should have indicated why it did not deem Greenberg's non-disclosures to rise to the level of "willful." The defense bar and pro se respondents need every bit of insight and every bit of information they can get from the self-regulatory organization when one case goes against the grain in such stunning fashion.