What Criminal Charges Must Be Disclosed on Form U4??

We’ve all made mistakes: getting a fake ID in college; yelling back at the other driver after a fender bender. But what happens if the situation escalated and you’re facing criminal charges? Such charges can differ depending on the state and prosecutor and people often wonder whether or not these types of criminal charges need to be disclosed on Form U4 (which is displayed publicly on BrokerCheck). This concern is often overlooked, even by defense attorneys. This means that your clients and potential employers can see any disclosure on your Form U4. The criminal matter typically has people’s attention, but what about that Form U4 disclosure?

Reportable Item

On the Form U4, the rule is clear: you have to report any felony convictions, guilty pleas, or no contest pleas, whether it was in domestic, military, or foreign courts. Also any felony charges against you, ever. If you are convicted or plead guilty or no contest to a misdemeanor that is investment related, or if the conviction or plea is related to fraud, false statements, omissions, wrongful taking of property, forgery, bribery, counterfeiting, perjury, or extortion, as well as any charges for these offenses, then you also need to report them on the U4 form. If you are charged with a felony or any of the above listed misdemeanors, it counts as a reportable item even if you haven’t been convicted of it. Conspiring to commit the above criminal acts also counts.

But these rules only sound simple. For example, New Jersey doesn’t use “felony” and “misdemeanor” labels for crimes. FINRA has a fallback definition: if the crime is punishable by jail for one year or more or a fine of $1,000 or more, then it’s a felony. But the guidance on other issues is less helpful.

FINRA defines “charged” in a way that diverges from local definitions. Being charged is an indictment, information, formal complaint or similar document. So what about a police officer writing on their report that you were “charged” with a crime? That’s not a formal charge. That distinction is crucial in determining what must be reported on the Form U4. Similarly, if the person was arrested and charged with a felony, even if that felony was never filed (and instead a misdemeanor was filed), the conviction may appear in court records to be the result of a reduced charge. How do you prove that the felony was not formally filed? You’ll need to get a confirmation letter, and that is a difficult letter to get. Otherwise, the charges will appear to be reportable.

As an example, in New York, a prosecutor may charge misdemeanor Criminal Possession of a Forged Instrument if the individual used a fake ID. A prosecutor might also charge Vehicle and Traffic Law 509(6) - for using a fake ID or someone else’s ID. The first one (forged instrument) looks like “forgery” - which is on the list. In some states, lying to a police officer about your age is considered a separate crime, while the reportability of all these things depends upon highly technical and detailed definitions within the statute. Each and every arrest has particular elements and circumstances which require a case-by-case analysis to determine whether the offense is reportable.

FINRA provides little guidance. But what about if your records were sealed or expunged?

Sealing or Expungement Statutes

FINRA guidance is that if a person obtains an order to set aside the conviction and restore the person to the status prior to the conviction, then such a conviction is not reportable. However, the approach under sealing or expungement statutes differs from state to state. In such cases, you should forward the sealing or expungement order to the RAD, so it can review the order. Therefore, whether or not the conviction would be reportable depends upon RAD’s analysis of the expungement/sealing order. So, there’s no blanket yes or no answer to that question.

The guidance appears to indicate that, if a person’s records are merely sealed (as opposed to expunged), those records are still reportable. If the court has not notified all the agencies, the offense may still appear in the FBI’s records. So be sure to check with the court to confirm it notified all agencies and the FBI records are cleared.

Ultimately, determining whether to disclose a conviction may be complex and, unfortunately, many criminal defense attorneys are not experts in FINRA’s rules. If your defense attorney manages to get a charge or plea that is good from a criminal law perspective but ends up on the list that requires FINRA disclosure, it could potentially cost you your career.