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Regulatory Sanctions

Tax Liens & Misdemeanors - Willful Failure to Update Forms U4

May 21, 2018

by Howard Haykin


FINRA Rule 1122. Filing of Misleading Information as to Membership or Registration:  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.
Article V, Sec 2(c) of FINRA’s ByLaws, Application for Registration:  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 [Securities Act of 1934], such amendment shall be filed not later than ten days after such disqualification occurs.


1.  A Nationwide Securities broker – with 35 years’ experience - agreed to a $5K fine and a 2-month suspension to settle FINRA charges that he willfully failed to timely amend his Form U4 to disclose a federal tax lien filed against him for $13,752.


The broker received notice of the lien – filed in August 2015 by the IRS - but failed to amend his Form U4 within 30 days for the new lien. This occurred even though the Firm had just disciplined the broker over lien disclosures, and had issued him letters earlier that year reminding him of his obligation to timely disclose liens, among other things.  [FINRA AWC #2016050192001]


2.  A Morgan Stanley broker – with 25 years’ experience - agreed to a $2.5K fine and a 4-month suspension to settle FINRA charges that she willfully failed to amend her Form U4 to disclose that she had been charged with 2 misdemeanors and later pled “no contest” to one of the misdemeanor charges.


In May 2014, the State of California charged the broker with 2 misdemeanors, both involving the wrongful taking of property. The broker pled "no contest" to one misdemeanor and the State later dismissed the other. The broker was required to amend her Form U4 within 30 days to reflect those charges and the "no contest" plea but failed to do so.


The broker compounded her violative conduct by falsely representing on multiple compliance questionnaires that she had not been charged with a misdemeanor.  [FINRA AWC #2017054644001]


3.  An Allstate Financial Services broker – 20 years’ experience - agreed to a $5K fine and a 3-month suspension to settle FINRA charges that he willfully failed to timely disclose on his Form U4 tax liens filed against him by the Internal Revenue Service and the State of Ohio.


Between March 2008 and June 2015, the IRS and the State of Ohio filed 11 liens against the broker, with the total amount of those unpaid liens being approximately $200,000. Although the broker was aware of those unsatisfied liens and was required to disclose each of them on his his Form U4, he willfully failed to do so a timely manner. Fact is, the broker didn’t amend his Form U4 for the liens until November 2015 - after FINRA notified Allstate of Malbasa's liens.  [FINRA AWC #2016049588501]


FINANCIALISH TAKE AWAYS.    Brokers are naturally hesitant to post negative disclosures on their CRD records – whether they’re rookies or Wall Street veterans as these 3 brokers are. After all, such disclosures are readily available for public inspection. That said, penalties can be draconian if and when caught. In each case above, the broker was U5’d by his or her broker-dealer and was suspended by FINRA for 3 months on average.




These cases were reported in FINRA Disciplinary Actions for May 2018.

For details on any case, go to ...  FINRA Disciplinary Actions Online, with reference to the particular Case/AWC Number.