Take a look at any month's disciplinary notices from FINRA (the artist formerly known as NASD) and count the number of disciplinary actions against brokers involving violations related to their Form U-4. Odds are good that you'll find many. What's troubling is that these violations are totally preventable. All you have to do to stay out of trouble in this area is to answer all questions on the U-4 honestly and accurately - even those that relate to bankruptcy, criminal convictions, criminal charges, and regulatory/disciplinary actions and arbitrations. What most people don't realize is that the federal securities laws impose rather draconian sanctions for violations of rules relating to a Form U-4, and while the report may appear to show only a short or mid-range suspension as a sanction, the respondent has effectively been barred from the industry.
Section 15(b)(4)(A) of the Securities Exchange Act of 1934 provides that a person who willfully fails to disclose material information (and to the regulators, all questions on the Form U-4 are material) on a Form U-4 is subject to a statutory disqualification from association with any securities broker-dealer. What does that mean? In a nutshell, if you don't answer the U-4 questions truthfully, and you did so willfully, you are essentially barred from association with any broker-dealer, forever. To overcome this disqualification, a firm must sponsor a person through a membership continuation process called an MC-400. Typically, disqualified persons find a hard time locating a firm to sponsor them, and the application process is difficult.
Many people are unaware of the statutory disqualification ramifications at the time they complete their Form U-4. And, brokers also don't think about that at when an event occurs that requires them to update their Form U4, and they decide put it off until later, many times at their own peril. For additional reading on this topic, check out a recent FINRA disciplinary appeal decision here.
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