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New York Fraud, Larceny and Theft Arrests: Consequences and Disclosures Associated with FDIC, FINRA and Your Form U4

Fraud arrests are embarrassing. Theft arrests are compromising. Larceny arrests are stigmatizing. Felony arrests in New York? Those can land you in prison. Misdemeanors? By Desk Appearance Ticket or full processing in Central Booking, there is potential for incarceration too. Whether it is a shoplifting arrest or DAT for violating the Petit Larceny statute of New York Penal Law 155.25 or Fifth Degree Criminal Possession of Stolen Property Statute of New York Penal Law 165.40, a fake identification arrest for violating  the Third Degree Criminal Possession of a Forged Instrument statute of New York Penal Law 170.20, a failure to pay a cab fare arrest for violating New York Penal Law 165.15,  or any other crime involving Forgery, Falsifying Business Records, Theft of Services, Scheme to Defraud or Grand Larceny, if you are regulated through FINRA or FDIC, the ramifications can be a “game changer” to your career and livelihood. While you can potentially avoid reporting certain misdemeanor crimes on your Form U4, if you are charged with any felony (even if it is later reduced or resolved in a non-criminal manner) or convicted of the same, you will have to answer for your alleged actions. Even if the offense you are accused if is merely a misdemeanor (“merely” is a relative term as New York does not expunge criminal convictions for these crimes) and the offense involves fraud, forgery, wrongful taking of property or even false statements or omissions, you will be required to report the alleged infraction. This blog entry will not address the substance and definitions of the above crimes (that can be found throughout this blog and the website), but reporting of these arrests and convictions on your U4 and consequences associated with FINRA regulations and those involving FDIC insured banks.

If you are reading this blog entry you are certainly aware of FINRA’s regulatory power for those who are broker-dealers, investment advisers, or individuals possessing securities licenses including, but not limited to, Series 3, Series 6, Series 7, Series 10, Series 11, Series 63, Series 65, Series 66, Series 79, Series 86, and Series 99. FINRA’s Form U4, the Uniform Application for Securities Industry Registration or Transfer, sets forth certain arrests and convictions that must be reported and disclosed. Pursuant to question 14A(1), you must advise FINRA if you have ever been charged with a felony regardless of the ultimate outcome. Arrested for Grand Larceny, Second Degree Assault, Fifth Degree Criminal Possession of a Controlled Substance or any other felony? If the answer is in the affirmative, disclosure is required.

Although misdemeanors are lesser offenses, but crimes nonetheless, certain infractions on your part mandate disclosure on your Form U4 as well. According to 14B(1)(a), if you pleaded guilty, were convicted after trial or even pleaded no contest, aka, nolo contendre, you must report this case if the misdemeanor involved investments or an investment–related 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. Pursuant to 14B(1)(b) you must also disclose these crimes even if you were merely arrested or charged. To put that in perspective, if you jump a turnstile or fail to pay your cab and are arrested for Theft of Services, New York Penal Law 165.15 or you are charged with a $50 shoplift involving Petit Larceny or Criminal Possession of Stolen Property in the Fifth Degree, this arrest or conviction can be construed as a wrongful taking of property.

Just as the crimes above can impact reporting for FINRA on your U4, if you are employed at an FDIC insured bank you will also have collateral consequences beyond your arrest.  Section 19 of the Federal Deposit Insurance Act (FDIA), a statute that governs the FDIC, specifically states that the FDIA

“[P]rohibits, 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.”

The FDIA and FDIC Section 19 language is as clear as it is unclear. Certain criminal convictions can terminate your employment, but what about pre-trial diversion? What if you were not convicted, but merely arrested? Although this is the subject of a different blog entry, the language here should put you on notice. Before accepting any deal, disposition or resolution, even if it is not a criminal conviction, vet your options and decision with your criminal defense attorney first. What you decide to do today may have implications well beyond tomorrow.

To educate yourself on the misdemeanor and felony crimes mentioned here, review the ample amount of very readable (aka, non legal speak) analysis found through the links or the websites and blogs below.

The criminal defense attorneys and former Manhattan prosecutors at Saland Law PC represent clients throughout the New York City – Brooklyn, Manhattan, Bronx and Queens – as well as many suburban counties including Westchester, Rockland and Putnam.


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