[Image:  by DullHunk (Duncan Hull) /  Flickr]

by Howard Haykin

In FINRA Disciplinary Actions for May 2017, the regulator reported disciplinary actions against one firm and 9 individuals for failures to update Forms U4 (Uniform Applications for Securities Industry Registration or Transfer) on a timely basis. Most of the individual citations related to tax lien disclosures. Others citations related to personal bankruptcies or the settled dispute with a former employer.

FINES AND SUSPENSIONS.    Seven of the 9 individuals received fines ranging from $2.5K to $10K. All 9 were suspended – anywhere from 2 months to one year - or 5.7 months on average. Those are serious sanctions, but FINRA is tough in this respect. FINRA is quick to run up the sanctions when registered associated person respond on annual compliance questionnaires that they had no reportable events that needed to be updated to the Forms U4.

Bill Singer, who authors the BrokeAndBroker Blog, expressed frustration with one aspect of FINRA's disciplinary process in his post, "Inconsistent FINRA Findings of Willful Nondisclosure Persist.” Here, he discuss concern for "the lack of consistency and clarity in FINRA's approach to deeming conduct as 'willful,' with the exponential enhancement of sanctions to include a statutory disqualification -- the thermonuclear option for self regulation.” All in all, it’s a great read – like most the other postings by this securities attorney.

STERNE AGEE SANCTIONED.   The firm agreed to a $122.5K fine to settle several FINRA charges, including one that said it failed to establish, maintain, and enforce a supervisory system and WSPs reasonably designed to ensure that the firm made timely and accurate amendments to registered reps’ Forms U4 to disclose liens, judgments and outside business activities.

According to FINRA findings, … the firm failed to effectively monitor or independently verify a registered rep’s liens, judgments and O/S business activity disclosures.

• While the firm ran a credit check and reviewed the registered rep’s CRD record upon hire, it relied almost entirely on the registered rep being forthcoming.
• The firm also did not require registered reps to submit an attestation concerning liens, judgments or O/S business activities at the time of hire.
• The firm also did not conduct any ongoing independent due diligence on their registered reps to ensure the continued accuracy of their Forms U4.
• When the firm did become aware that some of its registered reps had undisclosed tax liens and undisclosed O/S business activities, the firm failed to timely amend their Forms U4 to make the appropriate disclosures.

The Sterne Agee case was reported in FINRA Disciplinary Actions for May 2017.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2014039419601.