For most practitioners and securities professionals, FINRA’s Statutory Disqualification might be a familiar concept. However, that basic familiarity may not be enough to avoid the offense.
Chances are, you might find yourself trapped into a loophole – like going into a court injunction agreement – and find yourself facing statutory disqualification.
Below you’ll find information on what a Statutory Disqualification is as well as common examples that would qualify for this offense.
What is FINRA’s Statutory Disqualification?
By its simplest definition, statutory disqualification means that an individual is barred, prevented, or suspended from becoming a registered professional.
What makes a person subject under FINRA’s Statutory Disqualification?
Nevertheless, a person can only become disqualified as a consequence of a particular disqualification event. FINRA’s By-Laws, specifically Article III, Section 3(a)(39), states that a person is subject to statutory disqualification if:
- a person committed criminal offense, were convicted, charged with felony, or pled guilty for a crime
- a person committed deceptive, manipulative, or fraudulent conduct leading to the violation of certain applicable laws or regulations
- a person committed foreign convictions, domestic misdemeanor convictions, and domestic felony criminal convictions which involves the securities business and transactions and involves bribery, burglary, making of false reports, misappropriation of funds or securities, and perjury
- a person committed investment misdemeanors like bribery, extortion, fraud, or other similar unethical activities
- a person filed for bankruptcy within the last 10 years
- a person had their registration revoked or suspended by a federal contractor, an accountant, or an attorney
- a person received a final order from several important institutions like the federal banking agency, the state authority, or the state securities commission barring them to engage in financial services like those engaged in banking, insurance, and securities
- a person was issued temporary or permanent injunctions, arbitration, or civil litigation due to unlawful business and investment activities
- a person willingly abetted, aided, commanded, counseled, induced, or procured violating securities laws
The Most Common Downfall
Though there are many categories through which a person might fall under the statutory disqualification, there are actually four common landmines that most people fall into:
1 – Willfully making misstatements on reports, applications, or proceedings or willful omission of important material information,
2 – Entering into a court injunction agreement due to unlawful investment activities will automatically make a person statutorily disqualified,
3 – Violating state statutes prohibiting deceptive or manipulative conduct or fraud, and
4 – Willfully violating securities laws through aiding, abetting, commanding, counseling, inducing, or procuring such violations; even failing to supervise another person who committed such violations.
Is statutory disqualification permanent?
Perhaps one of the most common misconceptions of people facing statutory disqualification is that it’s permanent. The truth is that, FINRA sets forth eligibility proceedings so that those who are subject for statutory disqualification can be hired or retained in position.
This process entails the person submitting their application to the Department of Member Regulation of FINRA for review, follow-up, and lastly, evaluation.