Dodging regulatory bullets on Wall Street.
In his 26-years in the industry, Reggie Repp (that's what we'll call the anonymous broker in this story) was named in five customer complaints. In 1993, a customer sought $500,000 in damages for a poorly performing limited partnership; and in 1998, that arbitration settled for $26,362, but Repp did not contribute individually. In August 1995, another customer alleged that her investment was not performing properly, and she settled for $14,800, but the claims against Repp were dismissed. Finally, in 2000, Repp was hit with three separate customer complaints alleging unsuitability by two clients and forgery by one. Some nine years later, the three complaints have not proceeded to arbitration and there have been no settlements over $10,000.
Maybe not a charmed life, but Repp seems to have a knack for sidestepping his way out of serious trouble. But things were about to get far worse. In September 2000, Repp was charged with child abuse, a fourth degree felony. He entered into a pretrial intervention program, and the case was dismissed in May 2002. Did he need to disclose this fact on his U4? Note that in item 14A, the form U4 asks, have you ever:
(a) been convicted of or pled guilty or nolo contendere (“no contest”) in a domestic, foreign, or military court to any felony?
(b) been charged with any felony?
For those of you who guessed “no,” you reached the same conclusion that Repp reached. Unfortunately, that's the wrong answer. Even though Repp had not been “convicted” of a felony, he had still been “charged” with one, and regardless of whether his case was diverted or dismissed, the felony charge required disclosure.
Repp had another brush with the law in June 2004, when he was arrested and charged with misdemeanor possession of marijuana. Did his Wall Street career go up in smoke? Not yet. Repp was found not guilty in May 2005. Again, did he have a U4 disclosable event? In item 14B, the U4 form asks, have you ever:
(a) been been convicted of or pled guilty or nolo contendere (“no contest”) in a domestic, foreign or military court to a misdemeanor involving: investments or an investment-related business or any fraud, false statements or omissions, wrongful taking of property, bribery, perjury, forgery, counterfeiting, extortion, or a conspiracy to commit any of these offenses?
(b) been charged with a misdemeanor specified in 14B(1)(a)?
You're right: There's nothing in that laundry list of crimes that lists smoking a joint. As such, Repp basically got a regulatory pass on this incident.
But, stay with me. We're not done. In 2004, Repp filed for and was granted a bankruptcy discharge. Apparently, Repp decided to keep his bankruptcy a secret from his member firm and did not amend his Form U4. Of course, Item 14K of the Form U4 asks, within the past ten years:
have you made a compromise with creditors, filed a bankruptcy petition or been the subject of an involuntary bankruptcy petition? …
In March 2006, FINRA's Department of Enforcement accepted an Acceptance, Waiver and Consent (AWC) settlement offer from Repp for his willful failure to disclose his bankruptcy on his Form U4 and suspended him for three months. However, willfully providing false or misleading statements of material fact in a membership application to a self-regulatory organization is a statutory disqualification event. In fairly plain English: Repp is barred from the industry. As for the felony charge for child abuse, FINRA's Enforcement concluded that Repp mistakenly believed that he did not have to disclose it and let it go at that. After all, it's not like he was returning to the business any time soon — right?
In October 2006, a sponsoring firm submitted a Membership Continuance Application (“MC-400”) seeking to permit Repp to associate as a general securities representative. Without even a hearing, in 2008, FINRA let Repp back in.
How could this be? Visit http://rrbdlaw.com/STATDISQ/sddecisions/08002.htm for the details.