Disclosing Tax & Financial Events On The Form U4

In recent years, FINRA has consistently maintained that it views timely and accurate Form U4 reporting to be critical, and it has voiced its intent to take action against advisors who are not compliant. Specifically, Form U4 questions 14K and 14M require the disclosure of tax liens, unsatisfied judgments, bankruptcies, and “compromise[s] with creditors.”

Issues often arise when advisors are unaware of these disclosure requirements or the severe consequences of non-compliance.

FINRA's Proactive Enforcement

FINRA actively conducts searches of public records to identify representatives with unreported liens, judgments, and bankruptcies, and it checks these findings against the Central Registration Depository (CRD).  When an unreported financial event is discovered, FINRA will open an investigation. FINRA will also take action against firms that lack the procedures to effectively identify financial events that have gone unreported.

When FINRA uncovers a violation, it may offer the advisor a settlement in the form of a Letter of Acceptance, Waiver, and Consent, or “AWC.” This settlement allows representatives the option to accept lower sanctions—such as a fine or suspension—to avoid the costly and unpredictable process of a formal hearing, which could lead to a more severe penalty. If the advisor chooses not to accept the sanction offered in the AWC, FINRA will begin an enforcement proceeding. 

If FINRA decides that the failure to update the U4 in a timely manner was “willful” on the part of the advisor, that advisor may receive a “statutory disqualification” (SD). Unless a firm is willing to defend its advisor, an SD can lead to immediate termination and may prohibit the advisor from working in the securities industry.

To remain compliant and protect your career from these serious consequences, follow these proactive steps:

• Disclose Timely: Disclose any reportable financial event of which you are aware on your Form U4 within 30 days. 
• Conduct Research: If you experience tax or financial issues, and you’re not sure whether liens or judgments against you exist — conduct research, including viewing your current credit report, to identify and report any existing liens or judgments.
• Seek Expert Counsel: When you’re unsure whether an event is reportable, always seek counsel from your attorney or firm compliance

AdvisorLaw's Defense team specializes in protecting financial advisors against investigations and actions brought by FINRA Enforcement, including AWCs and SDs. Our team has proven strategies for both resolving back taxes and expunging lien disclosures from advisors’ records, safeguarding your professional reputation.