Many taxpayers lack the funds to pay their taxes when the time is due. In response to such a shortfall, individuals are faced with many choices: some legal, some not; some sensible, some foolish. Consequently, the April filing deadline often marks the beginning of a trying period during which many taxpayers try to arrive at some arrangement with state and federal taxing authorities. If negotiations are successful, a payment schedule might result. If negotiations fail, the taxpayer may be the subject of tax liens -- and as is often the case, such a financial predicament indicates the likelihood that other creditors are losing patience and may take steps resulting in civil judgments. Frequently, the crush of income-tax liens and civil judgments lead to a petition seeking a discharge in bankruptcy.Wall Street's registered representatives are faced with some unique employment, compliance, and regulatory issues when confronted by liens, civil judgments, and bankruptcy. As such, make sure to secure competent legal counsel when considering how to handle any potential non-payment of taxes or creditors. What you do and how you do it could have devastating career impact. As to some of your disclosure obligations, let's briefly consider a few rules and regulations pertaining to your disclosure obligations pertaining to liens, judgments, and bankruptcies. Following that rulebook review, let's consider how FINRA charges and sanctions non-disclosure -- which, sadly, doesn't seem to be in a consistent manner. . . it comes off willy nilly.
Definition of DisqualificationSec. 4. A person is subject to a "disqualification" with respect to membership, or association with a member, if such person is subject to any "statutory disqualification" as such term is defined in Section 3(a)(39) of the Act.
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(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.
(2) such other reasonable information with respect to the applicant as the Corporation may require.(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.
No 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.
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 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?
such person . . . has willfully made . . . in any application for membership or participation in, or to become associated with a member of, a self-regulatory organization, . . . any statement which was at the time, and in 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 . . . report . . . any material fact which is required to be stated therein."
[A] willful violation of the securities laws means "intentionally committing the act which constitutes the violation."16 The laws do not require that the actor "also be aware that he is violating one of the Rules or Acts."17 If McCune voluntarily committed the acts that constituted the violation, then he acted willfully.
Footnote 16: Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965); see also Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (citing Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)); Craig, 2008 WL 5328784, at *4 (finding that respondent willfully violated IM 1000-1 and NASD Rule 2110 by providing false answers on his Form U4).Footnote 17: Wonsover, 205 F.3d at 414 (citing Gearheart & Otis, Inc. v. SEC, 348 F.2d 798 (D.C. Cir. 1965)).
I understand that this settlement includes a finding that I willfully omitted to state a material facts 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 these omissions make me subject to a statutory disqualification with respect to association with a member.
Case In Point: GraetzIn response to the filing of a Complaint on September 15, 2016 , by the Department of Enforcement of the Financial Industry Regulatory Authority ("FINRA"), Respondent Kevin R. Graetz submitted an Offer of Settlement dated May 11, 2017, which the regulator accepted. Under the terms of the Offer of Settlement, without admitting or denying the allegations in the Complaint, Respondent Kevin R. Graetz consented to the entry of findings and violations and to the imposition of the sanctions. FINRA Department of Enforcement, Complainant, vs Kevin R. Graetz, Respondent (Order Accepting Offer of Settlement, FINRA Office of Hearing Officers, 2014038847602, May 15, 2017) (the "Order").The Order asserts that in 1988, Graetz was first registered and by February 2013, he was registered with FINRA member firm Paulson Investment Co., Inc. 2003 U4The Order alleges that in January 2003, Graetz completed a Uniform Application for Securities Industry Registration or Transfer ("Form U4") to become associated with FINRA member firm Maxim Group LLC., and he responded "NO" to the question: "Do you have any unsatisfied judgments or liens against you?"2007 to 2013 Tax LiensThe Order asserts that Graetz became the subject of the following ten liens:
$43,352,74 IRS lien recorded February 28,2007;$16,546.36 IRS lien recorded February 23, 2009;$179,234.06 and $206,490.15 IRS liens recorded August 6, 2009;$370,539.54 IRS lien recorded September 2, 2009;$206,741.30 IRS lien recorded September 10, 2010;$5,131 and $55,728.54 IRS liens recorded on September 14, 2010;$95,863 IRS lien recorded on July 14, 2011; and$25,938 State of Connecticut lien recorded on January 18, 2013;At the time each of the above liens were recorded, the Order alleges that notice was sent to Graetz's CRD address but that he failed to disclose the liens within the requisite 30 days of notice. Registering with PaulsonIn February 2013, when Graetz filed his initial Form U4 with Paulson, the Order asserts that the form "inaccurately and misleadingly indicates that Graetz was not subject to any unsatisfied liens." Also in February 2013, when his U4 was amended to add state registrations, the Order alleges that the filing "inaccurately and misleadingly indicates that Graetz was not subject to any tax liens, when in fact he was subject to at least ten unsatisfied state and federal tax liens at that time."Thereafter, the Order presents varying circumstances purportedly demonstrating that Graetz knew or should have know of the existence of varying lines. In June 2013, for example, the Order asserts that FINRA member firm Paulson received an IRS Notice of Levy relating to several recorded and unsatisfied tax liens against Graetz, and that Graetz also received mail notice from the IRS plus separate notice of receipt of the levy from Paulson. Further, in August 2013, Graetz purportedly was notified by a car dealership from whom he was seeking financing for a new car purchase that the dealership was "looking for the formal repayment agreement for the tax liens. . . we can see if a letter from your accountant detailing the progress and anticipated resolution for the liens will work . . ." Graetz apparently forwarded the dealership's requests to his account,m who replied on September 23, 2013, and explained the mechanics of the IRS lien process pertaining to a 2011 IRS lien.Three More LiensFollowing his registration with Paulson, the Order alleges that Graetz was the subject of the following three liens:
$52,750.62 IRS lien recorded September 10, 2013;$146,984.78 IRS lien recorded November 7, ,2013; and$3,841.28 New York State lien recorded on November 13, 2013.At the time of the above three additional liens, the Order alleges that Graetz was subscribed to a credit reporting service and received alerts of the liens. At the time each of the above liens were recorded, notice was allegedly sent to Graetz's CRD address but he failed to disclose the liens within the requisite 30 days of notice. The Order asserts that Paulson received a second IRS Notice of Levy in November 2013, and that Graetz received that notice via mail in addition to Paulson's notification. Despite three amendments to Graetz's Form U4 in January and February 2014, he purportedly failed to disclose any of the remaining 12 unsatisfied tax liens. 2017 DischargeOnline FINRA BrokerCheck records disclose that on April 28, 2017, Paulson "Discharged" Graetz based upon allegations that:
Terminated subsequent to initiation of customer-related arbitration claim alleging fraud, negligence, unjust enrichment.Willful Failure to Timely UpdateIn concluding its recitation of the underlying events, the Order concludes that:
In February 2013, Graetz filed an inaccurate and misleading Form U4 that failed to disclose numerous, unsatisfied state and federal tax liens that had been entered against him.
Specifically, in early February 2013, when he filed an initial Form U4 to register with Paulson, Graetz failed to disclose ten unsatisfied federal and state tax liens that had been entered against him between February 2007 and January 2013.
After he became was associated with Paulson, Graetz failed to amend his Form U4 to disclose any ofthe tax liens that had been filed against him, until May 2014. In addition, amendments were filed to Graetz's Form U4 in February 2013, January 2014, and February 2014, that inaccurately and misleadingly indicated that Graetz was not subject to any unsatisfied tax liens, when in fact, he was subject to at least ten and as many as twelve unsatisfied state and federal tax liens, totaling over $1 million, when he filed these Form U4 Amendments.
At least as early as June 2013, Graetz willfully failed to timely update his Form U4 to disclose that he was subject to, at various times, between ten to twelve unsatisfied state and federal tax liens, totaling over $ 1 million, despite knowing that tax liens had been filed against him and knowing his obligation to disclose liens on his Form U4.By filing inaccurate and misleading Form U4 and Form U4 Amendments and/or willfully failing to amend his Form U4 in a timely manner to disclose the unsatisfied tax liens that had been entered against him between February 2007 and November 2013, Graetz violated Article V, Section 2(c) of the FINRA By-Laws of the Corporation and FINRA Rules 1122 and 2010.Based on the foregoing, Respondent willfully omitted to state material facts on Forms U4 in violation of Article V, Section 2(c) of the FINRA By-Laws of the Corporation and FINRA Rules 1122 and 2010.SanctionsIn accordance with the terms of the Offer of Settlement, FINRA imposed upon Graetz a $10,000 fine and a six month suspension from association with all FINRA members in all capacities. The inclusion of a finding of "willfully failing to amend his Form U4" makes Graetz subject to a statutory disqualification with respect to association with a member.Another Case In Point: SearlesFor 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, Glenn Scott Searles submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Glenn Scott Searles, Respondent (AWC 2014040546101, May 15, 2017).In 1993, Searles was first registered and by May 2006, he was registered with FINRA member firm First Allied Securities, Inc., where he remained until his October 2013, registration with FINRA member firm Cetera Advisors LLC. The AWC asserts that Searles had no prior relevant disciplinary history in the securities industry.2012 Strongsville LienThe AWC asserts that on March 7, 2012, the City of Strongsville, Ohio obtained a judgment against Searles for $3,912.99 for underpayment of taxes and that the judgment provided that Searles would make $250 monthly payments.2012 ACQOn June 29, 2012, Searles completed an First Allied Annual Compliance Questionnaire ("ACQ"), and in response to the question, "Do you have any unsatisfied judgments or liens against you," Searles answered "NO." At the time he answered the questionnaire, Searles had several unsatisfied liens reported on his Form U4 and the unsatisfied City of Strongsville judgment. As a result, Searles' answer was false and misleading. Allegedly, Searles failed to timely make certain monthly payments on the Strongsville judgment and on August 15, 2012, a judgment lien against him, which he satisfied on December 19, 2012. The AWC further asserts that between March 7, 2012 and the present, Searles had filed numerous Form U4 amendments, none of which disclosed the judgment.2014 State of Ohio LienFurther, the AWC asserts that on October 30,2014, the State of Ohio obtained a $2,973.94 judgment and lien against Searles relating to his underpayment of 2012 state income taxes, which he subsequently satisfied on June 8, 2015. The AWC states that no later than February 2016, Searles had received notice of the in a letter from the State of Ohio. The AWC asserts that between February 2016 and August 26, 2016, Searles filed two amendments to his Form U4, neither of which disclosed the lien, and that he failed to make disclosure until August 26, 2016.Willy Nilly?FINRA deemed Searles failure to report on his U4 one unsatisfied judgment and his failure to report timely one lien a violation of Article V, Section 2(c) of FINRA's ByLaws and FINRA Rules 1122 and 2010.Further, Searles' misrepresentation to First Allied that he did not have unsatisfied liens against him on an annual compliance questionnaire was deemed a violation of FINRA Rule 2010. Notably absent from FINRA's charges is an allegation that Searles had "willfully" failed to disclose.SanctionsIn accordance with the terms of the AWC, FINRA imposed upon Searles a $5,000 fine and a five month suspension from association with any FINRA regulated broker-dealer in any capacity.Bill Singer's CommentGraetz's BrokerCheckThe Order states that Graetz "first became registered with a FINRA member in June 1988;" however, online FINRA BrokerCheck records as of May 25, 2017, disclose that he first passed a registration exam (the Series 7) in February 1991; and under the BrokerCheck heading of "Registration History," he is first shown registered from February 1991 to May 1991 with Gruntal & Co. Incorporated. Under Graetz's BrokerCheck headings of:
FINRA alleged that Searles had received notice of the October 30, 2014 Ohio tax lien as early as February 2016 but did not disclose that event until August 26, 2016, a period of about 22 months. If we measure the August 26, 2016, disclosure from the June 8, 2015, date when Searles satisfied the lien, the span is about 14 months.On October 30, 2014, the State of Ohio obtained a judgment and lien against Searles for $2,973.94 related to his underpayment of state income taxes for tax year 2012. Searles satisfied the lien on June 8, 2015. Searles received notice of the lien in at least February 2016, when he received a letter from the State of Ohio listing the lien.Between February 2016 and August 26, 2016, Searles filed two amendments to his Form U4, neither of which disclosed the lien. Searles did not disclose the lien on his Form U4 until August 26, 2016.
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.
Tax Liens And Wall Street Disqualification (BrokeAndBroker.com Blog, January 12, 2017):
Let Me Refer You To The Thoughts Of Veteran Industry Lawyer Alan Wolper, Esq. "Statutorily Disqualified? FINRA Says 'Deal With It'" (Broker Dealer Law Corner, By Alan Wolper, Esq. November 18, 2016):
The problem is, it is difficult to figure out exactly when FINRA will deem a failure to report a tax lien in a timely manner to be willful, and when it will not. I can personally attest that I have had a variety of clients tell essentially the same story to FINRA - I did not know about the lien, or I did not know I had to report the lien - yet come away with widely different outcomes. On one end of the spectrum, I have had FINRA take no formal action, and choose to content itself by issuing a Cautionary Action letter. In the middle, I have had FINRA take formal action, but agree the violation was not willful. Finally, on the other extreme end of the spectrum, FINRA has taken formal action and deemed the violation to be willful. It can be extremely frustrating to make the same argument over the same set of facts, but get different results.Finally, one more thing about statutory disqualification: FINRA could care less that a finding of willfulness renders a registered representative SD'd. As the Department of Enforcement recently put it in a brief it filed in one of my cases,statutory disqualification is not a FINRA sanction; it is a status that flows as a matter of course from predicates enumerated in the Exchange Act. If [Respondent] believes that statutory disqualification is an unduly harsh outcome for willfully violating U4 reporting requirements, he should address his grievances to the SEC and Congress. The SEC and the NAC surely would not want FINRA hearing panels to engage in the equivalent of jury nullification by declining to find willfulness where it has been proved.What an outrageously callous remark for the staff to make. At least one hearing panel, over a decade ago, had the courage to state the obvious: "A finding of willfulness, though not an element of the offense under Rule 2110, has serious collateral consequences." That FINRA staff consciously disregards these consequences, however, potentially career-ending consequences, just blows me away.
Visit the BrokeAndBroker.com Blog "Willfulness" ArchiveDownload a PDF copy of Bill Singer Esq's FINRA Rule 9216 (AWC) AnalysisClearly, the existence or non-existence of a statutorily disqualifying event is relevant. And I know this because the Sanction Guideline for inaccurate U-4 cases includes as one of the Principal Considerations " [w]hether="" [the]="" failure="" resulted="" in="" a="" statutorily="" disqualified="" individual="" becoming="" or="" remaining="" associated="" with="" firm."="" the="" fact="" that="" whether="" someone="" is="" sd'd="" not="" expressly="" pertinent="" to="" determination="" of="" appropriate="" sanction="" necessarily="" means="" it="" just="" material="" fact,="" but="" an="" important="" one.="" for="" finra="" simply="" pretend="" doesn't="" care="" its="" charging="" decision="" will="" dictate="" respondent="" gets="" sd'd,="" such="" finding="" isn't="" "sanction,"="" both="" short-sighted="" and="" unfair.<="" span="">