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. The Form U4 questions 14K and 14M require the disclosure of tax liens, unsatisfied judgments, bankruptcies, and “compromise[s] with creditors.” Issues arise when advisors are either unaware that such items are required to be disclosed, or they’re unaware of the consequences of failing to make the disclosures.
FINRA conducts searches of public records to identify representatives with liens, judgments, and bankruptcies, and it checks them against the CRD to determine whether the events were reported in a timely manner. When FINRA finds an unreported financial event, or one that was not reported in a timely manner, it opens an investigation. In a similar effort, FINRA also will take action against firms that lack the procedures to effectively identify financial events that have gone unreported.
Letter of Acceptance, Waiver, and Consent
When FINRA catches a violation, it may offer a settlement in the form of a Letter of Acceptance, Waiver, and Consent, or “AWC,” to the advisor. AWCs are offers of settlement that give representatives the option to accept lower sanctions, such as fines and suspensions, to avoid the costly process of a hearing that could result in 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 leads to termination.
To remain compliant and protect yourself from such a fate:
- Disclose any reportable financial event of which you are aware on your Form U4 within 30 days.
- 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 any existing liens or judgments and get them reported.
- When you’re unsure whether an event is reportable, seek counsel from your attorney or firm compliance.
AdvisorLaw’s Enforcement Defense team will defend you against any investigation or action brought by FINRA Enforcement, including AWCs and SDs. Our Lien Resolution & Expungement team has proven strategies for both resolving back taxes and expunging lien disclosures from advisors’ records.
Samantha DePrima, LL.M., J.D.
Director of Lien Resolution