Before being licensed, I did some consulting work and had a website. The state apparently felt I was providing investment advice and issued a cease-and-desist order. I took down my website, stopped my consulting work and was hired by a brokerage firm and took my Series 7. Do I need to disclose the cease-and-desist on my U4?

Yes. If you’re already working as a registered rep, you need to file an amended U4 as soon as possible. Frankly, I’m surprised that FINRA didn’t find this when you applied for registration.

Note also that you could conceivably wind up with another disciplinary item requiring disclosure of your initial failure to disclose. The longer you wait to file the  amended U4, the worse it will be.      

Specifically, Item 14D(1) of the U4 asks if any state regulatory agency ever found you to have been involved in a violation of investment-related regulation(s) or statute(s) and/or entered an order against you in connection with an investment-related activity. The cease-and-desist constitutes an “order” and the conclusions of law in that order found you to be in violation of state statutes requiring registration.          

Note that Item 14D(2) asks if you were subject to any “final order” of a state securities commission that barred you from association with a broker-dealer or investment advisor or from engaging in the business of securities or was based on violations of any law or regulation prohibiting fraud or deceit. I do not think you have to answer “yes” to those questions, just 14D(1)(b) and (d). My reasoning is that the order the state entered didn’t “bar” you from association with broker-dealers or RIAs. Rather, it said, in effect, that you need to be registered before doing so.

Likewise, the statute you violated wasn’t an anti-fraud law, but, rather, merely the registration statute. 

I recently put together some material for a seminar I want to put on. I gave it to my compliance supervisor who told me I couldn’t use most of it. When I asked him what was wrong, all he said was that the comparisons I was using didn’t have enough information. I spent a lot of time researching the particular securities at issue to compare the tax benefits. Can you shed any light on this?

FINRA Rule 2210, Communications with the Public, Paragraph (d)(1) says, in relevant part, that communications with the public “must provide a sound basis for evaluating the facts in regard to any particular security or type of security, industry or service. No member may omit any material fact or qualification if the omission, in light of the context of the material presented, would cause the communications to be misleading.” 

The rule also requires that comparisons between investments “must disclose all material differences between them, including investment objectives, costs and expenses, liquidity, safety, guarantees or insurance, fluctuation of principal or return, and tax features.”

It sounds as if you focused on the tax implications of the securities at the expense of addressing the other differences between them. For example, while one investment may have better tax consequences, the other could be more suitable in terms of risk. Additionally, while you don’t mention your qualifications, I would recommend you proceed with caution in discussing tax issues in a seminar if you’re not an accountant or CPA.

Read more: