Leaving and the U5

Maybe not quite registering, but related. This is what happens when you leave a company, or transfer to a new company.

The U5 is the ending document, like how the U4 is the starting document. It is always filled out by the firm. One way of thinking about it, is if you are helping them fill it out, and are happy, it is because you are retiring or transferring to another firm. If you are crying and trying to convince them not to fill it out, it is because they are firing you. As another additional uniqueness in this industry, maybe you’ve seen in movies or TV shows, someone talking to their boss who is going to fire them and they say “you can’t fire me! I quit!!”. Not in this industry. In this industry, if “we are firing you, you can’t quit”. You cannot resign, if there is an investigation underway.

The U5 must be filed within 30 days to notify FINRA of a registered reps termination of association with that member firm. Any changes, updates, or corrections to incorrect or inaccurate information must be amended and filed, again, within 30 days of discovering the need for the amendment to the U5.

The U5 could be either fully filled out, the “full form U5”, which is used for termination, and is the most likely to be seen. The partial form U5 is used to end registration with specific SRO’s or states, as in you are a one state company, and you move your headquarters to a new state, so you unregister in old state, and apply in new state.

Once no longer associated with a member firm, the former registered rep, whose license is not “inactive status”, has 2 years to reappoint, or they will need to retest. The 2 years is also reflective in that FINRA maintains jurisdiction over the registrant for 2 years after leaving the industry.

Military service is an exception. If a registered representative is called away for active duty, they clearly cannot serve as a registered rep anymore. Their registration is marked “inactive”, but they have no clock starting. If they are actively deployed, for say 1 year, after that 1 year, when they return, is when the 2-year clock starts. They don’t lose half of their time to find a new association, even if they are serving for 1 full year.

Statutory Disqualifications

These are bad, obviously, they sound bad. Unlike how they sound, they are not a sure fire, 100% guaranteed, denial. There are ways to apply with these on your record, it is just much more expensive, and much harder. Even if you apply through the exception, there is no guarantee FINRA will accept you anyway.

The most commonly thought of statutory disqualifications

Although there are several other types, these are the most tested and seen examples.

Being kicked out

If the person has been expelled, suspended, or barred from participating, or being associated with a member, an SRO, or any foreign equivalent of an SRO, international exchange, or similar for any securities or commodities, they would have a Statutory Disqualification.

Regulatory orders

If a person has, by order of the SEC, or another appropriate regulatory agency, or foreign securities authority; Had their registration (corporate person), or appointment (natural person), denied or suspended for a period not exceeding 12 months, or revoking their registration as a broker, a dealer, a municipal securities dealer, a security-based swap dealer, or similar, they would have a Statutory Disqualification.

An order by the Commodity Futures Trading Commission, or any foreign financial regulatory authority, in a similar way as the SEC above, would also qualify, and the person would have a Statutory Disqualification.

Causing downfall in others

If a person, while associated with a broker, dealer, municipal securities dealer, or similar securities professional, is found to be the cause of any effective suspension, expulsion, or similar such order by the SEC, or any other similar appropriate regulatory authority, they too would have a Statutory Disqualification.

Associating with dirty people

Any person who knowing associates with someone they should know, with reasonable diligence and care, is guilty of any of the outlined problems (basically, they’ve been suspended, expelled, barred from some regulatory authority), the not SD person, upon knowingly associating with someone who is Statutority Disqualified, they too would get a Statutory Disqualification. Don’t associate with criminals! ;)

Felony convictions in past 10 years

All felony convictions within the past 10 years would also be a Statutory Disqualification. Felony Convictions, not charges. Pleading No Content, or “nolo contendere”, is the same as guilty. The law do not care how minor the felony might seem, a felony conviction for littering 7 years ago, would also be a Statutory Disqualification.

Certain misdemeanor convictions in past 10 years

Misdemeanor convictions, involving money, securities, fraud, or similar type crimes, in the past 10 years, would also be a Statutory Disqualification. Again, the law does not care about charges, only convictions, no contest, nolo contendere, or similar. Making up an extreme example, let’s say someone was convicted of “misdemeanor for murder”, but to try and emulate the “felony for throwing trash” example, if someone, was convicted, of this fictitious charge of “misdemeanor murder” or “misdemeanor homicide”, that would NOT be a statutory disqualification, as it is not involving securities, money, fraud, or similar.

Additional information on charges

If any charges, become convictions that would fall under the Statutory Disqualification list, the firm must report to FINRA within 10 days to amend the U4. The firm could also always file a U5 as well, to terminate the now convicted representatives employment. Any other SD-related action, would also have to be reported within 10 days, but the most common, would be a charge becoming a conviction, or a plea of “no contest”. Remember, nolo contendere, or pleading “no contest”, is identical in FINRA’s eyes as a guilty conviction.

Moving won’t help (or hurt)

Also, it doesn’t matter where the potential representative might live now, only what the charges were when the applicant lived there. An example would be, imagine someone was arrested in California, charged, tried, and convicted for “misdemeanor something with marijuana”. Imagine what it would have to be, to be a misdemeanor in California! Anyway, now 4 years later this person has moved to Utah, or Oklahoma, or some other similar state that doesn’t have quite the same laws. The same crime, if committed in that state, that was a misdemeanor in California, is a felony in Utah. Well, this hypothetical person was convicted of a misdemeanor. A misdemeanor, that has nothing to do with money, securities, fraud, or similar. This would NOT be a Statutory Disqualification.

What if it was rephrased, and the crime was committed in Utah, where the person was charged, tried, and convicted again, but this time, for “felony something with marijuana”. Now 4 years later they are in California. Well, um, uh, this person probably should have thought a little harder about where they wanted to crime. They were convicted of a felony. Laws do not care where they live now, unless that felony is expunged, they have been convicted of a felony, so until 10 years have passed, that WOULD be a Statutory Disqualification.