One of the questions we sometimes get from financial advisors goes like this, “I've been arrested. Do I have to disclose that on my Form U4?” The range of underlying events I anything from a traffic violation to a very serious offense.
Generally speaking the answer is, “No,” because in most jurisdictions, an arrest is not a formal charge in court that commences a case. When you look at questions 14 A and B on the Form U4 it asks if you have been charged with either any felony or with any of the specified misdemeanors, you'll see that the word charged is in italics. That means it has a special definition.
The word charged, for purposes of the uniform forms, is defined as, “Means being accused of a crime in a formal complaint, information, or indictment (or equivalent formal charge).” So, under this definition, it means it's a formal charge in a court of law (or in a court martial) that really commences the case in court. And in most places (but not necessarily all) that is different than an arrest by the police. Just because you've been arrested does not mean you have to update your Form U4. You have to update your Form U4 when you've been formally charged with any felony or with one of the specified, reportable misdemeanors.
If you're in this situation, the wise thing to do is for you to seek outside counsel on this so you can get proper guidance and know, with certainly, what your obligations are under the rules. We've found that a lot of broker-dealer or investment adviser firms try to take the very conservative, cautious approach and have advisors report everything on their U4 when an advisor informs them of an arrest or charge. The problem is that reporting things that are not required to be reported makes your U4 inaccurate, and it creates this disclosure that certainly might cost you some business with clients or prospects when they see the disclosure. Yes, you need to report your U4 accurately and timely. And if you're required to update it to report a criminal event you certainly should. But if you're not required to report something on the U4, it's typically wise not to do so. So seek that outside opinion, if needed, to make sure that you protect your professional reputation as best you can.
Along these lines, we receive numerous calls from advisors seeking to try to clean up their U4 and remove criminal history disclosures from their U4 and CRD record if possible. As we review these, I have found, on more than a few occasions, that some of these events should have never been reported on the U4 in the first place, because it simply was not a reportable event. But, because the advisor followed their firm's guidance, they reported the event and that record then followed them around ever since. This adds more weight to our guidance that advisors should consult their own legal counsel about their Form U4 disclosure obligations to ensure that they are not reporting events that do not require disclosure.
If we can be of help to you with any Form U4 related matter I invite you to give us a call. You'll also find a lot more information about the U4 here on our blog, as well as on our YouTube channel. And, you can request a copy of our free guide, The Financial Advisor's Guide to a Cleaner Form U4 online here.
Update April 2021: The Beck Law Firm, LLC has introduced our new free guide, The Financial Advisor's Guide to Arrests, Criminal Charges, and Related Form U4 Issues. Click here to learn more.