FINRA Enforces MSRB rules on David Lerner Associates

If you think that what you study for your exam has "nothing to do with the real world," please check out this story: http://www.bondbuyer.com/issues/121_204/david-lerner-associates-million-fines-restitution-excessive-markups-1045154-1.html?ET=bondbuyer%3Ae6391%3A1836724a%3A&st=email&utm_source=editorial&utm_medium=email&utm_campaign=BB_Top_10_Emailed_102612

Excessive mark-ups will lead to trouble . . . eventually. Ignoring suitability concerns . . . same deal.

Oh well. David Lerner--the guy--will apparently be in the market for some Pass the 7 materials eventually. And, fortuitously, we will have our Pass the 24 materials ready by the time he needs to re-qualify by passing that one as well. Series7SampleQuestions

What IS a Series 7?

Maybe you're wondering what a Series 7 is, what it's used for, and why you might or might not want to go there. Click on the video below if you're curious . . .

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CRD, U4, U5 Reporting

If you click the following link, you will see how important all this U4, U5, BrokerCheck/CRD stuff actually is: http://www.finra.org/Newsroom/NewsReleases/2012/P177007.

We're not picking on this member firm. We're just using the headline from the FINRA website to illustrate how important it is for registered reps to promptly update their U4 information, especially when the information is embarrassing (see other post "felonies and finra registration").

Full disclosure is the foundation for our securities markets. The public needs to know about the individuals in the industry who have disciplinary problems, or have paid out arbitration awards/settlements based on their bad behavior. If a member firm and its associated persons deprive the regulators and the public of this information, investors are clearly harmed. And FINRA clearly will respond. Series7 - Need Help?

Can I get registered with FINRA if I have a felony conviction?

So, the post called "felonies and FINRA registration" has now grown to about 215 comments (half of them mine, of course). Who knew it was such a hot topic? Let's see what FINRA has to say about some of the quesitons I've been receiving.

Q: if a registered person is arrested but not charged with a crime, is the arrest required to be reported?
A: No. An arrest without a charge is not required to be reported.

Q: if a registered person is convicted of a crime and later pardoned, must the conviction continue to be reported? What if the conviction is set aside?
A: A person convicted of a crime and subsequently pardoned must continue to report the conviction. A pardon releases an individual from the punishment of the crime, but does not remove the conviction.

So, that comes close--but not quite--to answering the questions I keep getting from guys (it's always guys) who want to know if a conviction that is 'expunged' must be reported. Above FINRA uses the word "pardoned," which I don't think is the same thing as "expungement." But whether a conviction were pardoned or expunged, it appears that the CHARGE still has to be reported. FINRA gives me that clue with this statement, "Even if the conviction is not reportable, the charge may still be reportable." Don't you love the shades of gray they use? They then write, "Registered persons have an obligation to determine whether a criminal event is required to be reported through one or more questions under Item 14A or 14B."

Hmm . . . so I plan to talk to some more attorneys, but it appears my assumption so far is correct: even if you get a felony conviction expunged from your record, your truthful answer to the question of whether you were ever CHARGED with a felony is . . . YES.

Felonies and FINRA registration

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A customer recently emailed a question to me that touches on an important testable point: statutory disqualification. Here is the question:

I have been charged with felony forgery in the past year. I received probation and did not inform my firm. When my broker-dealer found out, they updated my U5 and terminated me. Now FINRA is investigating me for failing to update my U4 with the felony forgery information. My criminal information is now on BrokerCheck. Can I realistically get hired in the business again?

RESPONSE:
Forgery is directly related to the securities industry and would be a big problem whether a felony or a misdemeanor. There are bad-boy agents out there who will sell a deferred annuity to an unsuspecting senior citizen, then tell the customer to sell the thing and conceal the nasty surrender charge by forging the client's signature on the paperwork to do the annuity sale or switch. Also, so much sensitive information is provided by clients to registered reps that any crimes of dishonesty are major red flags to FINRA. To follow up by failing to update your U-4 with the negative information also hurts, because, in their eyes, it's another blatant form of dishonesty. Then again, if you cooperate with the investigation, maybe they'll suspend you, which is temporary. A bar is also very likely, unfortunately, and--unfortunately--a bar means "game over" in FINRAspeak. Wish I could be more upbeat about the situation, but it doesn't look good. Still, why not wait to see how the investigation ends up. Talk to an attorney who works in this area. More bad news: your state Administrator is likely to also take action if FINRA alerts them of any disciplinary decisions. Be sure to cooperate with all the regulators and try to get some good advice and/or representation by an attorney, who will want his or her retainer upfront. Be sure to be sitting down when they quote their retainer. Cooperating with FINRA can only help, while refusing to cooperate will keep people out of the business permanently every single time. You might want to go to http://www.finra.org/ and look up the enforcement section and discplinary orders. Read through the recent cases that led to temporary suspensions and permanent bars to get a feel of how things generally turn out. I wish the violation were more of a goof-up than two separate acts of dishonesty. "A member, in the conduct of his business shall observe high standards of commercial honor. . . " is the basic creed of FINRA and all the other self-regulatory organizations. Without trust, the system can't function.

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