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FINRA Sanctions Against Rep For Failing To Disclose Civil Fraud Action Upheld

Douglas J. Toth, Exchange Act Rel. 58074 (July 1, 2008)

Time since appeal filed - 10 months, 4 days
Time since last brief - 6 months 22 days
Pages - 15
Footnotes - 34


Toth was a registered rep at a NASD member firm. He failed to disclose a civil fraud action filed against him thereby causing the firm to file an inaccurate U4 registration form and failed to file an amendment to the form. NASD suspended Toth for one year. The Commission affirmed.

Toth had been associated with various firms since 1993. He was previously the CEO of a registered broker. He left the business in 2002. In July 2003 the New Jersey Attorney General’s office filed a civil suit against Toth and his former firm, alleging securities fraud.The suit alleged that Toth had made fraudulent sales of investments. In various meetings with the principals of another firm he associated with Toth vaguely claims to have disclosed the New Jersey action. There was specific testimony from a principal of the firm that Toth made no disclosure. In August 2003 Toth’s new firm filed a U4 that omitted disclosure of the New Jersey action. A specific question on the form asks whether there is any “pending investment related civil action . . . .” Toth did not file or sign the U4, but knew that the firm was submitting it on his behalf. Toth thereafter refused several requests to manually sign the U4. Toth left the firm in October 2003. In response to a NASD request for information, Toth claimed to have no recollection of the details of his conversations with the firm about his disciplinary history, but claimed he had orally disclosed all pending actions.

The NASD hearing panel found Toth’s testimony that he had disclosed the action not credible. The Commission gives credibility determinations by initial fact finders “considerable weight.” The witness whose testimony was credited made a minor factual error about the location of one meeting with Toth, but the Commission found that this minor inconsistency was not sufficient to overturn the hearing panel’s credibility determination.

The Commission found that Toth’s failure to review the form before it was filed irrelevant as he knew the firm would file it on his behalf. A registered rep is responsible for the accuracy of the U4 even if it is filed on his behalf.

In upholding the sanction the Commission noted that it was consistent with NASD sanction guidelines. The guidelines call for a sanction of a five to thirty day suspension up to a two year suspension or bar in the case of egregious violations. Since the U4 is a critical tool for determining the fitness of applicants for registration the failure to disclose the New Jersey action was serious. The fact that the action was dismissed two years later is irrelevant. It cited a previous case where sanctions for failure to disclose a perjury conviction that was overturned three weeks later were upheld.


U4 disclosures are taken seriously and registered reps are responsible for the accuracy of the forms even if the form is filed on their behalf by the firm they are seeking to associate with. Credibility determinations by the initial finder of fact will not be overturned even if based on testimony of a witness who was inaccurate about details such as the location of a meeting.