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Collateral Consequences of a New York Arrest or Criminal Conviction for FINRA Registered Persons or Employees of FDIC-Insured Institutions

Posted By Galluzzo & Arnone || 11-Jul-2014

When a person is arrested for a crime in New York State, the immediate concerns are to avoid jail time and to protect against criminal conviction. However, for certain licensed professionals and employees of banks and other FDIC-insured institutions, other collateral concerns must be addressed at the earliest possible time. In fact, critical mistakes can be made with respect to these concerns at the earliest stages of criminal prosecutions. Even a seemingly beneficial disposition offer at the arraignment proceeding can lead to disastrous consequences down the road. Thus, if such individuals find themselves under arrest and being processed through the system to arraignment, it is important to retain FINRA and FDIC knowledgeable counsel prior to any arraignment or court appearance, even if it takes place hours after the initial arrest and detention.

FINRA Concerns

As set forth on FINRA's website, Form U4 is the Uniform Application for Securities Industry Registration or Transfer. Representatives of broker-dealers, investment advisers, or issuers of securities must use the form to become registered persons in appropriate jurisdictions. See http://www.finra.org/web/groups/industry/@ip/@comp/@regis/documents/appsupportdocs/p015111.pdf.

Section 14 of the Disclosure Questions contains certain, specific criminal history questions:

Rev.FormU4(05/2009)

UNIFORM APPLICATION FORSECURITIES INDUSTRY REGISTRATION OR TRANSFER

INDIVIDUAL NAME: INDIVIDUAL CRD #:
FIRM NAME: FIRM CRD #:
14.DISCLOSURE QUESTIONS
IF THE ANSWER TO ANY OF THE FOLLOWING QUESTIONS IS ‘YES’,

COMPLETE DETAILS OF ALL EVENTS OR PROCEEDINGS ON APPROPRIATE DRP(S)

REFER TO THE EXPLANATION OF TERMS SECTION OF FORM U4 INSTRUCTIONS FOR EXPLANATIONS OF ITALICIZED TERMS.

YES NO
Criminal Disclosure
14A. (1) Have you ever:

(a)been convicted of or pled guilty or nolo contendere (“no contest”)in a domestic,foreign,or military court to any felony?

(b)been charged with any felony?

(2) Based upon activities that occurred while you exercised control over it, has an organization ever:

(a)been convicted of or pled guilty or nolo contendere (“no contest”) in a domestic or foreign court to any felony?

(b)been charged with any felony?

14B. (1) Haveyouever:

(a)been convicted of or pled guilty or nolo contendere (“no contest”) in a domestic, foreign or military court to a misdemeanor involving:investments or an investmentrelated business or any fraud, false statements or omissions,wrongful taking of property,bribery,perjury,forgery, counterfeiting, extortion,or a conspiracy to commit any of these offenses?

(b)been charged with a misdemeanor specified in 14B(1)(a)?

(2) Based upon activities that occurred while you exercised control over it, has an organization ever:

(a)been convicted of or pled guilty or nolo contendere (“no contest”) in a domestic or foreign court to a

misdemeanor specified in 14B(1)(a)?

(b)been charged with a misdemeanor specified in 14B(1)(a)?

O O

O O

O

O O

O

O O

O O

O

O O

O

Thus, as is clear from the form itself, section 14A deals with felonies. Both arrests and convictions must be reported. However, if you are a registered person who is facing felony charges, it is important to seek competent representation familiar with the form and how your criminal charge is applicable. Sometimes cases which come in as felonies are not prosecuted as such, and other times cases begin as misdemeanors and later become felonies. Certain dispositions of felonies may mean a change to the answer to these questions.

Section 14B., on the other hand only requires disclosure of arrests or convictions of theft or dishonesty related misdemeanors. When handling your criminal matter or dealing with the form itself, it is important again to retain counsel who can guide you through the process taking into consideration relevant New York procedural law.

FDIC Concerns

Section 19 of the Federal Deposit Insurance Act makes clear that any individual charged with a crime involving dishonesty cannot control or participate in the affairs of any FDIC-insured institution:

"Section 19 of the Federal Deposit Insurance Act (12 U.S.C. 1829) prohibits, without the prior written consent of the Federal Deposit Insurance Corporation (FDIC), a person convicted of any criminal offense involving dishonesty or breach of trust or money laundering (covered offenses), or who has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense, from becoming or continuing as an institution-affiliated party, owning or controlling, directly or indirectly an insured depository institution (insured institution), or otherwise participating, directly or indirectly, in the conduct of the affairs of the insured institution. In addition, the law forbids an insured institution from permitting such a person to engage in any conduct or to continue any relationship prohibited by section 19. It imposes a ten-year ban against the FDIC’s consent for persons convicted of certain crimes enumerated in Title 18 of the United States Code, absent a motion by the FDIC and court approval." http://www.fdic.gov/regulations/laws/rules/5000-1300.html

Although this may have been originally meant to apply to situations of embezzlement, large-scale theft, forgery, or other seemingly serious crimes, consider that people in New York are commonly charged with Theft of Services for seemingly minor offenses, such as jumping the subway turnstile, not having enough cash on hand to pay a taxi, or as a result of a dispute with a restaurant or nightclub over a bill. In many of these situations, the benefit of the doubt is given to the police officer, taxi driver, or club owner and an arrest is made even though the underlying conduct is the result of a mere misunderstanding. Then, because of the minor nature of the offense, the arrestee is brought to court either within a 24-36 hour period following the arrest or pursuant to a Desk Appearance Ticket ("DAT") and offered an adjournment in contemplation of dismissal ("ACD"). An ACD is essentially a 6-month adjournment of the case. At the termination of that period of time, the court dismisses and seals the case, and the arrest and prosecution are deemed to be legal nullities. On its face, this sounds like an appealing disposition to most criminal justice novices because they hear that the case will be dismissed and that they will not have to return to court.

Unfortunately, an ACD may be a trap for the unwary FDIC employee because the FDIC has interpreted its own rule to state that an ACD is a pretrial diversion or similar program within the meaning of section. See, e.g., In the Matter of Gaby Cucu, FDIC-08-341L available at http://www.fdic.gov/bank/individual/enforcement/2009-03-39.pdf. Moreover, in Smith v. Bank of America Corp., 865 F.Supp.2d 298 (2012), a bank employee sued Bank of America in the Eastern District of New York for discrimination on account of the bank's withdrawal of an offer of employment based on plaintiff's prior petit larceny case that had been adjourned in contemplation of dismissal. In that case, the Hon. Judge Weinstein ruled that the FDIC was entitled to interpret its statute that way, and dismissed the lawsuit against the bank.

Thus, it is of critical importance thatall efforts are exhausted to seek total dismissal of the case prior to accepting an ACD for a seemingly minor matter, such as Petit Larceny (Penal Law § 155.25) or Theft of Services (Penal Law § 165.15) as noted above. While such a disposition may be an unavoidable alternative to a criminal conviction, all possibilities must be considered before entering into a disposition which could jeopardize a career.

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