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Regulatory Sanctions

Willful Failure to Disclose: A President/CCO Lands in the Black Hole

March 8, 2019

by Howard Haykin


The U.S. Court of Appeals for the 11th Circuit denied an individual’s petition to review an SEC order, which sustained FINRA’s sanctions that were based on charges he willfully failed to timely disclose 5 tax liens on his Form U4.


At this point, the case and the options of this individual (principal owner, President and Chief Compliance Officer of Sequoia Investments, a small B/D) have essentially run their course. It all began in 2013 with a field examination of the Sequoia and ended with the court's decision not to hear the case. In between, …


  • FINRA Enforcement filed its complaint - November 2015.
  • FINRA OHO (Office of Hearing Officers) rendered its decision - June 2016.
  • FINRA NAC (National Adjudicatory Council) largely sustained the OHO decision - March 2017.
  • The SEC sustained the OHO decision - July 2017.



The individual was fined $20,000, suspended from association with any FINRA member in all capacities for 6 months and suspended from association with any FINRA member in all capacities for 30 business days, to be served consecutively.
More importantly, as described more fully below, because this individual’s misconduct was deemed to be willful and the information he failed to disclose was material, FINRA By-Laws [Article III. Sections 3(b) & (d)] call for him to become subject to statutory disqualification. This means he cannot be associated with any FINRA member firm unless that firm obtains permission from FINRA.



THE TAX LIENS.     Between June 2003 and June 2010, this individual became the subject of at least 6 tax liens, totaling $407,931.78. These liens, and the dates they were recorded or filed, were as follows:


  • June 10, 2003: federal tax lien for $150,843.50;
  • December 12, 2005: State of Georgia tax lien for $6,962.92;
  • January 11, 2007: federal tax lien for $19,175.80; [this lien was released in February 2007 and not included in the final charges]
  • November 3,2008: federal tax lien for $130,137.74;
  • April 6,2009: State of Georgia tax lien for $27,236.57; and
  • June 2, 2010: federal tax lien for $73,575.25.



WHAT WENT WRONG.    During its examination of Sequoia in 2013, FINRA examiners generated LexisNexis reports for Sequoia’s registered representatives. This individual’s report listed the liens mentioned above. And, as part of the exam, the individual was asked to fill out a Personal Activity Questionnaire (“PAQ”), which included the following question: “Do you have any unsatisfied judgments or liens against you? If yes, provide detail as to each.” The individual answered: “No.”


FINRA Enforcement filed a Complaint against this individual with 2 counts. First, it was alleged that: (i) the individual failed to timely amend his Form U4 to disclose the 5 tax liens; (ii) his failure to amend the Form U4 was willful; and, (iii) the information omitted was material. Second, it was alleged that this individual’s representation on the PAQ that he had no liens constituted providing a false statement to FINRA in bad faith.


In December 2013, the individual amended his Form U4 to disclose the applicable tax liens - and, at no point during the FINRA and SEC disciplinary process, did he ever dispute the fact that he had failed to timely update his Form U4 to disclose 5 unsatisfied tax liens, as required by NASD and FINRA By-Laws and rules.


However, throughout the years, the individual persisted in describing the non-disclosures as inadvertent – not intentional, and certainly not willful. Unfortunately, FINRA (examiners, Enforcement, OHO, NAC) and the SEC found this individual’s claims to be “not credible,” and in doing so, ruled against this individual or sustained earlier decisions and sanctions.



For further details on this case, click to access: