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Amend an important FINRA form, 10 years after filing?

Q: 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 of the mortgage.

Since there was no judgment entered on the foreclosure, I didn’t think I had to disclose this on my U4. Recently, however, some people I’ve spoken to have said the short sale amounted to a compromise with creditors and should have been disclosed. I had always thought that guidance referred to settlements involving credit cards, and, to be honest, I never associated it with a short sale concerning a mortgage. However, since it’s now actually been 10 years since that short sale, I don’t have to report it anyway, right?

A: Unfortunately, no, that’s not right.

Question 14K of the Form U4 asks whether you have, within the past 10 years, made a compromise with creditors. While you’re correct that 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 (or DRP) would have been completed with the relevant information and the disclosure would have appeared on your 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Once the 10 years had elapsed, you could then have answered the question “no,” and the information would have been archived and would no longer be visible to the public.

FINRA headquarters
They “need to be thinking about guaranteed income streams” because there’s “not a lot of time for recovery,” an expert writes.
November 15
Pam Kelley is the Product Line Manager for Wolters Kluwer Tax and Accounting workflow solutions, including CCH Axcess Practice, CCH Axcess Workstream CCH Axcess iQ and CCH ProSystem fx Practice Management. She has been with Wolters Kluwer for almost 20 years, first as a business analyst, then product owner, before moving to product management earlier this year. Prior to working for Wolters Kluwer, Pam’s background includes working as Development Manager for another time, billing & workflow solution provider as well as Accounting Manager in private accounting.
November 15
Damon Russel is the Product Line Manager at Wolters Kluwer responsible for driving strategic development, sales and retention, and portfolio management of document management and client collaboration solutions for Tax and Accounting Professionals. He has over 10 years of experience delivering enterprise software solutions for Wolters Kluwer customers and their clients around the globe.
November 15

I’m surprised that your employer or FINRA hasn’t picked up on it, but if you’ve been with the same firm since 2008, there may not have been any reason for your firm or FINRA to do a background search, like there would if you were seeking to get registered at a new firm.

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

At this point, you should first speak to an attorney who can give you specific guidance as to your rights and potential disciplinary ramifications. Technically, what you should do is let your employer know about the disclosure. 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.

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