One Too Many For The Road

Apr 1, 2008 12:00 PM, By Bill Singer

Drinking and driving is a very bad idea for a lot of reasons. But did you know how bad it can be for your job? If you have between two and five prior DUI misdemeanor convictions within three to twelve years, thirty-seven states will charge the next DUI as a felony. And that could make it impossible for you to work for a broker/dealer for a long time: Section 15A(g)(2) of the Securities Exchange Act of 1934 prohibits any person convicted of a felony from associating with a Financial Industry Regulatory Authority (FINRA) member for 10 years after the date of conviction.

The rule of thumb for a felony conviction is three prior DUIs within five years — but that varies according to each state, so check out the law. Below, the story of one broker who was convicted of a felony for a string of DUIs, but managed to keep his job.

Third Strike

In 1991, “Roger”* was convicted of a misdemeanor for driving under the influence of alcohol (“DUI”), sentenced to 12 days in jail and fined $250. In 1995, Roger became a registered representative. In 1997, Roger was convicted of a second misdemeanor DUI, sentenced to three years probation, jailed for 30 days, fined $500 and subjected to a six-month license revocation.

In 2003, Roger pleaded guilty to a third DUI, resulting in a felony conviction, a $1,000 fine, revocation of his driver's license for one year and five years probation. Roger became statutorily disqualified until 2013, and needed FINRA's permission to remain associated with his employer (the Firm).

In 2006, the Firm submitted to FINRA a Membership Continuance Application (the MC-400) seeking to permit the employment of Roger as a general securities representative. FINRA's Department of Member Regulation recommended denial of the MC-400 because:

Roger did not appear to recognize the seriousness of his 2003 DUI felony conviction;
Roger failed to amend his Form U4 to disclose the DUI felony conviction;
Roger had a “very sporadic” employment history;
Roger and the Firm acted irresponsibly because the Firm improperly compensated Roger; and
the proposed supervisor had a troubling 1998 settlement for supervisory failures.

But that proposed denial was rejected by a hearing panel of FINRA's Statutory Disqualification Committee. The panel recommended approval, which was subsequently authorized by the National Adjudicatory Counsel (NAC). In approving the MC-400, the NAC considered the following:

Alcoholism: Roger voluntarily entered an inpatient alcoholism center for 30 days and then completed six months of outpatient treatment. He also joined Alcoholics Anonymous (AA), and remains an active member.

Disclosure: Between 2004 and 2005, six Form U4 amendments filed for Roger affirmatively disclosed the felony charge but not the conviction. Although Roger should have been more diligent in assuring compliance, the evidence was overwhelming that Roger did not willfully hide the history because he had orally informed his prior supervisor and firm of the charge, the conviction and the alcoholism treatment.

Employment: Roger's employment history with 12 different firms during some 11 years was not ideal, but he was found to have testified credibly that he often relocated in an effort to find work in a more ethical environment.

Compensation: Between August and November 2006, the Firm paid Roger a total of $26,000, as “a recruiter of personnel … unrelated to his registration at the Sponsoring Firm.” Roger and the Firm did not conceal the arrangement, and did not realize that the activity was prohibited.

Supervision: In a 1998 NASD settlement for failures arising from his role as a compliance officer with a former firm, the supervisor was censured, fined $7,500 and ordered to qualify as a principal again. Also, he was named (as compliance director) in two customer complaints filed in 1996 that were subsequently withdrawn. The Firm proposed a 14-point plan of heightened supervision. Under the totality of circumstances, the NAC was comfortable with the proposed supervision and the proposed supervisor's role.

See, In the Matter of the Association of X as a General Securities Representative with The Sponsoring Firm Redacted Decision Notice Pursuant to Section 19(d) Securities Exchange Act of 1934 Decision No. SD07003 (FINRA/NAC: http://www.finra.org/web/groups/enforcement/documents/nac_stat_dq_decisions/p037826.pdf).

*Roger is a made-up name for broker “X” cited in the legal documents.

Writer's BIO: Bill Singer practices law at Stark & Stark, and is the publisher of RRBDLAW.com