X was arrested for his fourth DUI in June 2005, and initially charged with a misdemeanor because the State 1 records showed that two of his prior DUI arrests were eliminated through youthful diversionary programs. At the hearing, however, X testified that due to changes in State 1’s DUI laws, the State 1 court reevaluated his prior conviction record and determined to count all three of his prior DUI arrests as misdemeanor DUI convictions. X also produced documentation to show that in August 2005, the State 1 court upgraded the fourth DUI charge against him to a felony DUI, to which he pled guilty in September 2006.

The court sentenced X to 90 days in jail and 12 months’ post-release treatment, and imposed a $2,500 fine. X served his jail sentence, paid his fine, and completed his required treatment. He testified that he continues to be active in Alcoholics Anonymous and has a sponsor in the program. X stated that he has maintained his sobriety since April 2006.

X was discharged by a previous employer, Firm 1, in March 1999. The record did not include a copy of the Uniform Termination Notice for Securities Industry Registration (“Form U5”). However, FINRA’s record for X shows that, prior to the discharge, Firm 1 conducted a routine review of X’s customer accounts and questioned him about certain of his accounts that involved retired persons purchasing initial public offerings. The record also includes subsequent amendments that Firm 1 made to X’s Form U5 that indicate that two customers filed complaints against X for unsuitable recommendations.

X was discharged by another previous employer, Firm 2, in May 2003. The Form U5 filed by Firm 2 stated that it terminated X for “violating firm policy. The [financial advisor] took discretion in client accounts.” X submitted documents to show that the questionable trades were done on behalf of the widow of a deceased account holder, at the request of the widow’s attorney. X did not submit any documents, however, to show that he had written proof at that time that the widow had appropriate authority to request the trades in the account.

X’s record includes four customer complaints filed against him, resulting in two denials of action and two settlements.

1. In November 2006, customers SE and MC alleged that X had engaged in unauthorized trading in their accounts from 2002 until 2005 and asserted $8,000 in losses. Firm 2 stated that its "review of the matter revealed no evidence of wrongdoing" and denied this claim "in its entirety" in January 2007. X testified that his ex-wife and her mother instituted this complaint and that it had no substance. Employee 1 testified that the complaint was a "malicious, frivolous attempt to defame" X.

2. In January 2000, customers RA and MA alleged that their account was mismanaged. Firm 1 denied this complaint in January 2000.

3. In July 1999, customer MM alleged that X had engaged in an unsuitable strategy of investing in initial public offerings and that she incurred losses of $59,000. Firm 1 settled the complaint in August 1999 for $20,000, and the record shows no individual contribution from X.

4. In March 1999, customer KC alleged that X made unsuitable investment recommendations in connection with her account and that she incurred losses of $52,000. Firm 1 settled the complaint in April 1999 for $35,433, and the record shows no individual contribution from X.

FIRM 3

• The 2000 LOC cited Firm 3 for failing to have provisions in its clearing agreement regarding the handling of customer complaints and the availability of exception reports, and for the untimely filing of its annual audit for the fiscal year ending December 31, 1999. FINRA did not require Firm 3 to file a written response to this LOC because the firm had responded to these items in an exit interview.

• The 2002 LOC cited Firm 3 for failing to timely report a notice of arbitration and for failing to restrict the duties of a representative who had not complied with continuing education requirements. Again, FINRA did not require Firm 3 to file a written response to this LOC because the firm had responded to these items in an exit interview.

• The 2004 LOC cited Firm 3 for several violations, including untimely filing of a disclosure event, failure to report a termination for cause, continuing education requirement violations, and failure to maintain option agreements for two option accounts. Firm 3 responded by letter dated February 2005, listing the actions it had taken with regard to the deficiencies noted by FINRA.

In January 2005, FINRA suspended Firm 3 because it had failed to comply with an arbitration award or pay fees in an arbitration case, or to satisfactorily respond to a FINRA request to provide information concerning the status of compliance. FINRA lifted the suspension in February 2005 when Firm 3 paid the applicable fees.

SPONSORING FIRM

FINRA issued The Sponsoring Firm an LOC in February 2006, following an alternative municipal examination of the Sponsoring Firm in January 2006. The LOC cited the Sponsoring Firm for failing to file a required form on a timely basis and failing to timely update its designation of an individual responsible for anti-money laundering compliance. The Sponsoring Firm respondend by letter dated March 2006,listing the actions it had taken with regard to the deficiencies noted by FINRA.

1) X has repeatedly shown a disregard for the law, as evidenced by his fourth DUI conviction, which is "indicative of irresponsible behavior"; 

2) X failed to timely inform his then employer and amend his Uniform Application for Securities Industry Registration or Transfer ("Form U4") to reflect his fourth DUI arrest in June 2005 and its upgrade to a felony charge against him in August 2005; 

3) X’s record includes "serious" customer complaints against him; 

4) Firm 1 discharged X in 1999 for inappropriate recommendations to seniors; and 

5) Firm 2 discharged X in 2003 for taking "discretion in client accounts."

1. Proposed Supervision
2. Felony
3. Timely Notices
4. Regulatory History

PLAN OF HEIGHTENED SUPERVISION

The Sponsoring Firm has agreed to the following comprehensive supervisory plan to ensure that it will be able to maintain heightened supervision for X. The Sponsoring Firm did not indicate by asterisk which of the proposed procedures were heightened as to X and not required for other registered representatives. 

13. The Proposed Supervisor will make random calls to X’s customers on a monthly basis to verify that X has adhered to all standards and disciplines established by the Sponsoring Firm;

At the hearing, X testified that he provided timely information regarding the 2005 charges to his former compliance officer at Firm 2 and that he did not understand why his Form U4 did not reflect such information. The Hearing Panel granted X’s request to file a post-hearing submission consisting of deposition testimony from his former compliance officer on this topic. The deposition testimony, however, is inconsistent. The former compliance officer readily agreed that X promptly informed him orally of the June 2005 arrest, which was a misdemeanor DUI. The former compliance officer also testified that he relayed this information to Firm 2’s management and legal department, and that he understood that they were waiting to see the ultimate disposition of the arrest before reporting it on the Form U4. The former compliance officer also testified, however, that he did "not recall" that X told him in August 2005 that the DUI arrest had been upgraded to a felony, although he did recall that X came to him shortly after the June 2005 DUI arrest with a "sob story" about how the misdemeanor was "more of a serious offense." The August 2005 upgrade of the charge to a felony was a particularly important fact for X to have disclosed to Firm 2 because a felony conviction results in a person being subject to statutory disqualification. Based on this inconsistent evidence, we cannot find that X fulfilled his obligation to promptly inform his employer of the gravity of the charges against him in order to make proper disclosure on his Form U4.

X’s disciplinary history and his repeated criminal convictions for DUI demonstrate a lack of respect for authority and an inability to conform to the regulatory atmosphere of the securities industry.

Although the NAC noted the lack of formal disciplinary history for the Sponsoring Firm, the Proposed Supervisor, and Employee 1, these facts do not outweigh our concerns about the seriousness and recency of X’s conviction, his history of customer complaints, and the relatively short period of his sobriety. We are also not persuaded that the Sponsoring Firm has structured an adequate plan of heightened supervision for X. At the hearing, the Proposed Supervisor testified that he is a producing principal who currently supervises nine other individuals and that he expects to receive an override on X’s production. We question whether the Proposed Supervisor has sufficient time to devote to the heightened supervision of a statutorily disqualified individual such as X, and whether X’s supervisor should directly profit from X’s production. Further, the proposed supervisory procedures continue to place sole responsibility for the review and approval of X’s daily trades upon Employee 1, via the Sponsoring Firm’s electronic trading surveillance software, and not on the Proposed Supervisor, the primary on-site supervisor.

Employee 1’s testimony at the hearing also fails to establish the Sponsoring Firm’s ability to comply with terms of heightened supervision for a statutorily disqualified person. Employee 1 stated that he currently employs eight representatives, including X, who are subject to the Sponsoring Firm’s own heightened supervisory procedures due to certain disclosures on their Forms U4. The Sponsoring Firm’s procedures restrict such individuals from working alone from their homes, yet Employee 1 concedes that X has been permitted to work from his home since he started at the Sponsoring Firm in June 2006. When Employee 1 was questioned about this discrepancy at the hearing, he stated: "I guess I can’t answer that." Such inattention to the requirements of heightened supervision is not acceptable in statutory disqualification matters.

As a registered representative, X was responsible for knowing the rules of the securities industry and for providing information about the 2005 criminal charges to Firm 2 on a timely basis. See, e.g., Robert E. Kauffman, 51 S.E.C. 838, 840 (1993) ("Every person submitting registration documents [to FINRA] has the obligation to ensure that the information printed therein is true and accurate."), aff’d, 40 F.3d 1240 (3d Cir. 1994) (table). 

It is axiomatic that the responsibility for maintaining the accuracy of a Form U4 lies with each registered representative. Dep’t of Enforcement v. Howard, Complaint No. C11970032, 2000 NASD Discip. LEXIS 16, at *31-32 (NASD NAC Nov. 16, 2000), aff’d, 55 S.E.C. 1096 (2002), aff’d, 77 F. App’x 2 (1st Cir. 2003).