Back when I was 18 I was charged with two felonies. On one, the charges were completely dropped the next day. For the other, it was reduced to a minor violation (not even a misdemeanor). Now I am 50. I have steered clear of any similar misadventures for 30 years — a span of time that includes my 26 years' tenure as a stockbroker.
Is there any way that these embarrassing details can be removed from my U4/U5?
The most relevant words in Question 14A(1) on the Form U4 are “any felony.” Technically speaking, no matter how long ago an incident occurred, if you were charged with a felony for it, it has to be disclosed.
On a secondary level, though, your question raises an interesting issue: Does there come a point in time when the felony is so old and so unrelated to the securities business that it doesn't make sense (from a regulatory standpoint) to continue requiring disclosure?
Unlike expungement of customer complaints (a procedure which is now detailed in NASD Rule 2130), there is no specific rule or procedure for expunging felony or other criminal information. Even so, the NASD would, in all likelihood, honor a court order that seals or expunges an individual's criminal record, such as a case in which the individual was a minor at the time he was charged. The problem in your case — and it's not a small one — is obtaining such a court order when the individual was an adult at the time he or she was charged.
Different jurisdictions have different requirements for sealing or expunging an adult criminal record, and you should consult with a criminal attorney in your area in order to determine whether it would be possible in your particular case to get your record expunged. Some of the issues the court would probably look at include the seriousness of the offense, the disposition of the charge, how long ago it occurred and whether there were any other criminal matters on your record.
Procedurally, you would probably file something like a declaratory judgment action. However, convincing a judge to expunge an adult criminal record is not going to be easy, and absent that court order (or a change to the U4/U5 question), the NASD will continue to disclose the charge.
Although it's not really a requirement in this type of case, you should consider serving the NASD so they can object if they believe it's warranted. I say this because under the new Rule 2130, the broker must serve the NASD when seeking to have customer dispute information expunged. Though your situation doesn't involve an expungement of customer dispute information (and therefore, arguably, Rule 2130 doesn't apply), failing to serve the NASD may create more problems down the road. For example, the NASD could well argue that 2130 does apply and subsequently charge you with a violation. You could then end up having to defend yourself in a disciplinary hearing, trying to convince a hearing officer of your arguments.
If you are successful in obtaining a court order, the rest is a simple matter of notifying the Central Registration Depository (CRD) and providing them with the appropriate documents.
It's important to remember, however, that the language of the court order should be clear and that you follow up with the CRD. Sometimes the CRD may just “code” information as “nondisclosable” rather than deleting it completely from your record. In such cases, the information will be seen by anyone who obtains a copy of your record from a state like Florida (as opposed to the NASD). States like Florida provide the raw, unredacted CRD report, which include supposedly “nondisclosable” information.
My question concerns FDIC-insured certificate of deposit for very elderly clients. Is there any problem in recommending a 15- or 25-year maturity CD to a client in her mid-to-late 90s? For these clients, a decent return and the knowledge that their principal is safe are often the highest priorities, and a CD addresses these requirements quite well.
Also, what happens after the client dies? After you talk to the client's probate attorney and realize it's going to be at least a year or two before the estate settles, what can you do with all of that interest stacking up in the money market and with the principal as CDs and CMOs come due, get called in and principal is returned?
Few investors have more clearly identifiable needs than people in their 90s. They are certain to pass away in the near future, and they must be prepared to meet impending health and home-care costs. It is no longer relevant how much longevity runs in their families, how healthy they seem to be or how rich they are. Imminent health issues and death dictate that the overwhelming majority of 90-somethings need their savings to be both well protected and easily liquid.
While FDIC-insured CDs are usually considered as safe as “money in the mattress,” CDs that take 15 or 20 years to mature are guaranteed not to meet the liquidity needs of almost any 90-year old, absent careful consideration of the consequences of an early surrender.
Even if her sole intention is to pass the money on to her heirs, the investor must understand that not only might the CD purchase bar her from having unfettered access to those funds, it might also prevent her heirs from having unfettered access for years to come. For example, if early surrender causes complete loss of interest, it is hard to imagine a circumstance in which such an investment would be appropriate.
If a client is advanced in years and already has her monthly expenses covered, recommending a long-term financial instrument such as a CD is not a problem. At first glance it may seem that such a transaction is inappropriate, considering the fact that the certificate will not mature until the client is 100 to 105. Upon further inspection, though, it becomes apparent that the client: (a) does not want immediate access to the money, (b) is seeking preservation of equity and (c) wants to lock in the highest interest rate available while taking advantage of the fact that the CD is FDIC insured.
Many senior citizens continue to purchase CDs for the simple reason that it is always what they have done before and this is the investment strategy they are most comfortable with. In summary, if the transaction is what the client desires, so be it.
Whenever making an investment for a client, there are four simple rules:
- Assess their goals.
- Establish their investment experience.
- Review their options.
- Disclose the risks.
Be sure to document — in writing — the client's investment decisions and the information you were given by them concerning their financial status. Also document in writing that you reviewed all of their options with them.
In the scenario pertaining to the client in her late 90's and the purchase of a long-term CD, there is no true potential of loss of investment capital in terms of “market risk” because the instrument is FDIC insured.
However, should a situation arise where the certificate would have to be liquidated prior to the maturity date, penalties can be substantial. In the eyes of the law, senior citizens do not have the ability to re-enter the workplace to recoup financial losses, so the potential liability is always greater when handling their portfolios. All risks and downsides should be disclosed in writing, and additional risk disclosure statements should be executed whenever appropriate.
Lastly, the fact that the death option liquidates the certificate upon the demise of the holder further substantiates the legitimacy of making such a recommendation. As far as what can be done with the interest accruing in the meantime, that is up to whoever is handling the estate.
Ethical Rep is a monthly feature in which more than 30 prominent securities attorneys, experts and law school professors help Rep. readers deal with work-related ethical quandaries. Have you encountered a situation at work that makes you uncomfortable? Are you confused about how your responsibilities to clients might change as regulations continue to evolve? Drop a line to Rep.'s contributing editor, Ann Therese Palmer, and our group of experts will help you work through the problem.
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