Wednesday, June 29, 2011

Trouble with FINRA

If you click the title of this post, first of all, remember to hit the back arrow; otherwise, you're gone. Secondly, know that this is all public information. The New Jersey Bureau of Securities--what the test calls the Administrator--operates in a very public fashion. If you get in trouble, they publish your name, address, and registration number. And they tell the world what you did and why that was, like, not allowed. For example, the respondent whom we find first on the list, under "Aaron, Shawn E." got in trouble with FINRA (formerly NASD) for, apparently, threatening and intimidating an issuer of common stock, telling them they'd better listen up, or he could drive down the market price of their stock based on his large holdings. Well, like a lot of guys, he overstated the size of his holdings, but that's not what got him in trouble with NASD. It was the whole threatening/extortion thing that really ticked them off. Notice how NASD (now FINRA) suspended him for two years--meaning he might be able to get back in after requalifying by exam and probably finding a firm willing to do heightened supervision for a while, assuming anyone wants to hire him. Also notice that NASD/FINRA notify the state Administrator when somebody gets in trouble with them. And, that the state has a whole separate hearing to determine if the license should be--in this case--revoked.

Registration and Trouble with FINRA

Can I get registered as an IAR or RIA if I have gotten in trouble with FINRA in the past?

I get that question a lot. At, we're up to about 350 questions and comments from people who either have arrests and criminal charges or previous trouble with FINRA, a bank regulator, or an insurance commissioner, etc. As always, the answer is: depends. A felony charge has to be disclosed on Form U4 and U5, but it generally takes a conviction to get your license denied or revoked by the state securities Administrator. A misdemeanor conviction will get you in trouble if it's "investment-related." That means that a misdemeanor conviction for shoplifting would be "investment-related" because theft is relevant to ANY position in the financial services industry. On the other hand, if you pled guilty to misdemeanor DUI, that would not be disclosed on Form U4 or Form U5. It's a misdemeanor, and it's not a crime that involves money or deception.
We're talking about criminal disclosure here. There is also a section on Form U4 for regulatory disclosure. If you had been a securities agent 7 years ago and got suspended by FINRA (NASD at that point) for churning and unauthorized transactions, that has to be disclosed when registering as an IAR with your state securities Administrator. Forget to disclose it, and the state will have a hearing to officially deny you a license. Game-over kind of thing. Remember that IARs and RIAs don't register with FINRA; FINRA is for the brokerage side of the business only. IARs always register with the states; RIAs are either state-registered or federally registered. To register as an RIA, the firm uses Form ADV. For some reason, this form only asks about problems in the previous 10 years. But when the IAR associates with the firm, they submit a U4, and this form asks if the applicant has EVER been convicted of/pled guilty or no contest to/charged with any felony or any misdemeanor relevant to the industry. Ever. I know of a few agents who answered "no" to those uncomfortable questions, but when the IL Securities Dept found out they were lying, they revoked their licenses. Game over. Never lie on a form filed with any securities regulator, especially if there's a chance you'll get caught.
There's always a chance you'll get caught, too. A darned good chance, in fact. And, when you go through the Administrative hearing and end up getting your license revoked, the Administrator will be happy to publish the whole thing, complete with your name, address, and registration number.
To see what we mean, let's visit the "Administrator" for New Jersey at: