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Regulatory Sanctions

FINRA Sanctions: 'Willful' Failure to Update One's Form U4 [First of a 2-Part Story]

July 20, 2017

Failure to update on a timely basis one’s Form U4 (“Uniform Application for Securities Industry Registration or Transfer") for a material financial disclosure is a common FINRA disciplinary action against registered persons. In July alone, 8 individuals were cited for failing to timely update their Forms U4 – in 7 cases, their actions were labeled “willful.” The distinction is significant because those individuals typically incur heavier sanctions and they're now likely to be subject to a statutory disqualification.  


In his blog, FINRA's Willy Nilly Tax Lien Settlements,” attorney Bill Singer illustrates the nature of, and pitfalls associated with, the FINRA "willful" label. In his blog post, Bill walks through the applicable FINRA and SEC rules, along with Cases in Point.


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. 


Statutory Disqualification for Willful Non-Disclosure
If an associated person willfully fails to disclose financial issues such as tax liens, Wall Street's regulators and the federal courts would likely deem that individual subject to a statutory disqualification. Under Section 3(a)(39) of the Exchange Act, in pertinent part, statutory disqualification attaches if:


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."


Myra Mormile-Wolper, who back in 2012 was an associate with Kelley Drye & Warren (she's now an SVP and Associate GC at E*Trade), published A Road Map Through the Land of Statutory Disqualification on In relevant part, Ms. Mormile-Wolper stated:


A person or member (hereinafter collectively referred to as “person”) becomes “statutorily disqualified” (a/k/a “SD’d”) as a consequence of a certain disqualification event that prevents the person from continuing to operate in the industry. [FINRA] By-laws Section 4[1]; FINRA Rule 9521(b). Events that result in statutory disqualification include:

Findings that a person willfully made or caused to be made material misstatements or omitted material facts in applications or reports made to, or in a proceeding before, a self-regulatory organization (SRO); …


Ms. Mormile-Wolper organizes her discussion around the following categories:  (i) The Basics; (ii) The Common Landmines; (iii) Once SD'd, NOT Always SD'd; and, (iv) The Lesson.


FRIDAY, in PART 2: Eight 'U4' Cases Reported by FINRA in Disciplinary Actions for July 2017.