FINRA is Out For Blood When it Comes to U4 Tax Lien Disclosures

Since its early days, AdvisorLaw has successfully assisted financial industry professionals with expunging disclosures from their records. Undisclosed federal and state tax liens can have a drastically negative impact on financial advisors because FINRA has increasingly been cracking down on FAs who do not timely update their Form U4 disclosures, per:

  1. Article V, Section 2(c) of the FINRA bylaws
  2. NASD Interpretive Material 1000-1 (for the conduct on or before August 16, 2009) and FINRA Rule 1122 (for the conduct on or after August 17, 2009); and 
  3. NASD Conduct Rule 21 10 (for the conduct on or before December 14, 2008) and FINRA Rule 2010 (for the conduct on or after December 15, 2008). 

As we confront such issues on a daily basis, having a clear and complete picture of regulatory trends is imperative, and AdvisorLaw keeps a close watch over FINRA’s emerging disciplinary action reports.

In recent years, FINRA has continued to cast a much wider net in its efforts to obtain public information regarding both civil and criminal cases, as well as tax-lien filings. In the past, FINRA’s search was limited to the tri-county lien search, which only includes the neighboring counties in which a person resides or works. Today, FINRA searches national databases for state and federal tax liens. Based on recent data, FINRA’s latest approach has proved to be a successful implementation from a regulatory standpoint. 

As documented, the number of undisclosed state and federal tax liens has increased two-fold for individual advisors, while the total number of advisors disciplined has remained roughly the same or decreased.

Do you need assistance resolving back taxes or removing existing IRS tax lien disclosures? Give us a call now at (303) 952-4025, or contact us for a complimentary consultation.

It appears that FINRA typically fines advisors somewhere in the neighborhood of $5,000 for undisclosed tax liens and suspends them for anywhere between three and six months, depending upon any other disciplinary actions that may have not been disclosed — which typically lead to more substantial fines and suspensions.

Recently, an AdvisorLaw client was contacted by his compliance department regarding an unreported judgment and state and federal tax liens that appeared in a national search and totaled over $150,000. This individual had eight undisclosed liens and one undisclosed judgment. Within a few weeks, AdvisorLaw’s Tax-Lien Resolution team was able to determine that, while all judgments and liens were indeed associated with the individual, none of those mentioned were reportable Form U4 disclosure events, according to FINRA rules and bylaws. AdvisorLaw worked directly with the client’s firm compliance department and, upon explaining the entirety of the situation, successfully avoided the reporting of all disclosures in question on the amended Form U4, including those items that had previously been disclosed.

Based on the data promulgated by FINRA and our research thereof, it is fair to assume that FINRA will continue its aggressive approach to identify and discipline advisors who have failed to disclose tax liens. If you have tax liens that have not been reported on your Form U4, we recommend submitting an amended Form U4 as soon as possible, in order to avoid the potential fine and/or suspension.

If you are worried about the impact that tax disclosures will have on your business, please contact us for a free consultation and comprehensive analysis of your situation.

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