When it comes to filling out paperwork for a job in the securities industry, here's a good rule of thumb: Tell the truth. It sounds obvious, but Stephanie Ann Dixon actually got contradictory advice. In 2000, while applying for a job at a broker/dealer, she asked a senior vice president there how to respond to Question 23A(1)(b) on Form U-4: “Have you ever been charged with any felony?”
Given her past, the answer seemed obvious. Dixon had been charged with not one but four felonies concerning a 1999 fire that torched her car. In April 2000, fraudulent claim and theft charges were dismissed, and she pleaded guilty to misdemeanor charges of arson and filing a false or misleading insurance claim. She was fined and sentenced to two years probation. Nonetheless, when asked about Question 23A, her mentor counseled her to respond “no” (perhaps because the charges had not resulted in felony convictions). Believing she had received good advice, Dixon answered no. However, in later paperwork she disclosed the felony charges and their outcomes on a criminal disclosure reporting page.
The contradiction came back to haunt her: In October 2000, Dixon's b/d moved to fire her, citing her failure to disclosure the four felony charges. The case against her seemed cut-and-dried — it was anything but. Under Section 15(b)(4)(A) of the Securities Exchange Act of 1934 (and Article III, Section 4(f) of the NASD by-laws), a person who willfully fails to disclose any required material fact in an employment application is deemed statutorily disqualified from functioning as an associated person in the securities industry. “Willfully” means that a respondent knew, or should have known under the particular facts and circumstances, that the conduct at issue was improper.
Not unexpectedly, NASD regulation filed a complaint, alleging that Dixon's failure to disclose the felony charges was a willful violation. At the conclusion of the hearing (Dixon represented herself), the staff conceded that they hadn't proven her willfulness. The panel concurred.
Nonetheless, the panel found Dixon guilty of filing a false or inaccurate Form U-4 and of failing to respond in a timely manner to requests for information (she had failed to respond to three NASD letters spanning a one year period). In determining the severity of the sanctions to be imposed, the panel considered three points:
The nature and significance of information at issue. The panel took into account that the felony charges were ultimately dismissed or reduced to misdemeanors, and Dixon had been placed on probation rather than jailed.
Whether the omission resulted in a statutorily disqualified person becoming associated with a firm. Dixon did not become registered with the firm and, in fact, was terminated.
Whether the misconduct harmed a registered person, a firm or anyone else. The panel noted that there was no suggestion that Dixon inflicted any particular injury on the firm, its representatives or its customers.
For failing to respond in a timely fashion to information requests, Dixon was fined $2,500 and suspended in any and all capacities for six months. For filing the false U-4, Dixon was fined $2,500, and if she re-enters the securities industry, she must complete the regulatory element of her continuing education requirement within one year of her registration. She also was assessed a total of $1,733.08 in costs.
Hard as it might be to believe, Dixon was lucky. Her violations were viewed in the best possible light, and she retained the right to be employed in the securities industry. But when all is considered, the counsel she took from her old firm's senior vice president caused her large amounts of unnecessary trouble.
Dixon's case underscores one point: If you are unclear about the meaning of any question on any industry form, consult with a lawyer or with someone in your firm's compliance department before submitting the document. Although some situations (like Dixon's) might free you from some responsibility for your answers, in most cases, inaccuracies will come back to haunt you.
Bill Singer is a partner with the law firm of Gusrae, Kaplan & Bruno. rrbdlaw.com