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Once the 10 years had elapsed, you could then have answered the question “no,” and the information would have been archived and would no longer be visible to the public.
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Ali Diab is the co-founder and CEO of Collective Health, the world's leading employer health benefit plan administration platform. Ali has more than 25 years of experience leading high-growth technology organizations, and prior to co-founding Collective Health, was Vice President of Product Management and Business Operations at AdMob by Google. Previously, Ali held executive and management positions at Goldman Sachs, Microsoft, and Yahoo!. Ali is a graduate of Stanford and Oxford Universities and is a Member of the Board of Advisers of the Stanford Institute for Economic Policy Research (SIEPR) and a Trustee of San Francisco Day School.
A series of settlements and arbitration awards since late 2022 require Stifel to pay hundreds of millions over recommendations made by its former broker Chuck Roberts.
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.
