Amend­ing FINRA Forms

How to re­port a trans­ac­tion that should have been dis­closed to reg­u­la­tors long ago, but wasn’t.

Financial Planning - - Contents - BY ALAN J. FOXMAN

How to re­port a trans­ac­tion that should have been dis­closed to reg­u­la­tors long ago, but wasn’t.

Q: Do you need to re­port some­thing you never dis­closed on a Form U4 if it took place over 10 years ago?

Af­ter the 2008 crash, my house went into fore­clo­sure. I en­tered into an agree­ment with my mort­gage lender, which al­lowed a short sale on the home to sat­isfy the mort­gage in ex­change for the mort­gage com­pany not seek­ing a judg­ment on the bal­ance.

Since no judg­ment was en­tered on the fore­clo­sure, I didn’t think I had to dis­close it on my U4. Re­cently, how­ever, peo­ple I’ve spo­ken to said the short sale amounted to a com­pro­mise with cred­i­tors and should have been dis­closed. I had al­ways thought guid­ance re­ferred to set­tle­ments in­volv­ing credit cards and, to be hon­est, I never as­so­ci­ated it with a short sale con­cern­ing a mort­gage.

A: Yes, you should still re­port it (with a lawyer’s help).

Ques­tion 14K of the Form U4 asks whether you have, within the past 10 years, made a com­pro­mise with cred­i­tors. While you could le­git­i­mately an­swer the ques­tion “no” if 10 years have passed, the prob­lem is that you should have pre­vi­ously an­swered the ques­tion “yes.” Had you done so, the Dis­clo­sure Re­port­ing Page would have been com­pleted with the rel­e­vant in­for­ma­tion. The dis­clo­sure would have ap­peared on your Cen­tral Regis­tra­tion Depository (or CRD) re­port.

Once the 10 years had elapsed, you could then have an­swered the ques­tion “no,” and the in­for­ma­tion would have been archived and would no longer be vis­i­ble to the pub­lic.

It’s rare that your em­ployer or FINRA wouldn’t have picked up on it, but if you’ve been with the same firm since 2008, there may have been no rea­son to do a back­ground search.

The prob­lem now, how­ever, is that, tech­ni­cally, the ques­tion would be an­swered “no,” and there’s no way to open the DRP to pro­vide the de­tails with­out an­swer­ing the ques­tion “yes.”

Tech­ni­cally, you should let your em­ployer know. They would then file an amended U4 and an­swer 14K “yes” and com­plete the DRP in­for­ma­tion. They could then con­tact FINRA’S dis­clo­sure de­part­ment, which would open a case and man­u­ally archive the in­for­ma­tion.

How­ever, be­cause of the late fil­ing, it’s quite pos­si­ble that FINRA’S en­force­ment di­vi­sion could get in­volved and hit you with a fail­ure-to-dis­close dis­ci­plinary ac­tion, which could re­sult in a fine and/or sus­pen­sion.

There­fore, be­fore you do any­thing, you should con­sult with le­gal coun­sel. You might be tempted to let sleep­ing dogs lie, but I would not rec­om­mend that with­out at least talk­ing to a lawyer. It’s pos­si­ble that this could still come out even­tu­ally, and the ram­i­fi­ca­tions could be worse the longer you let it go.

Mak­ing an agree­ment with a mort­gage lender might still re­quire dis­clo­sure with a reg­u­la­tor.

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