FINRA recently published the disciplinary actions for September 2011. There are a few cases this month dealing with U4 issues, including two cases against firms for U4 related violations.
First the firms. In one case, (Case 2010021038901) a firm was fined $75,000 and censured for a variety of violations including net capital, books and records, as well as U4 issues. FINRA found that the firm failed to ensure amendments to brokers’ Forms U4 were filed to disclose customer complaints and the resolutions to the complaints. FINRA also found that the firm filed certain amendments late. In another case, a firm was censured and fined $60,000, and an individual was also sanctioned for a variety of violations found by a Hearing Panel. The Panel found that the firm failed to make required updates to the Forms U4 and U5 of registered reps. relating to customer complaints, arbitration cases, and lawsuits within 30 days (Case 2008011701203).
FINRA also sanctioned several individuals for not properly completing their U4. In one case, a broker submitted an offer of settlement to resolve allegations that he failed to disclose material information on his U4. Specifically, FINRA found that he willfully failed to disclose felony charges that had been filed against him. Case 2009018670101. The broker was suspended for six months and fined $5,000. But because the findings were that he willfully failed to disclose the information, he was subjected to a statutory disqualification.
In another case (case 2009018582501), a broker was fined $5,000 and suspended for 30 business days based on findings that he failed to disclose on his U4 that he had been charged with three felonies. The charges were later reduced or dismissed, but FINRA alleged that he did not properly disclose them. This case did not include a finding of a willful failure to disclose material information.
Finally, another broker was suspended for six months, but not fined due to his financial condition, based on findings that he willfully failed to disclose a felony charge and conviction on his U4. Case 2010023830101. Given the willful finding, he was also rendered statutorily disqualified.
This month's cases against individuals seemed to all relate to criminal issues, but that is not typical. Prospective brokers and brokers should understand that the criminal background search conducted by the FBI for FINRA is pretty thorough, and often catches criminal records that the broker did not disclose on the U4. Because of the potential of being statutorily disqualified due to a willful failure to disclose such information, brokers who don’t properly complete their U4 subject themselves to some significant penalties and can jeopardize their ability to work in the securities industry.