Definition of Disqualification

Sec. 4.  A person is subject to a "disqualification" with respect to membership, or association with a member, if such person is subject to any "statutory disqualification" as such term is defined in Section 3(a)(39) of the Act.

Application for Registration

Sec. 2.  (a) Application by any person for registration with the Corporation, properly signed by the applicant, shall be made to the Corporation via electronic process or such other process as the Corporation may prescribe, on the form to be prescribed by the Corporation and shall contain:

(1) an agreement to comply with the federal securities laws, the rules and regulations thereunder, the rules of the Municipal Securities Rulemaking Board and the Treasury Department, the By-Laws of the Corporation, NASD Regulation, and NASD Dispute Resolution, the Rules of the Corporation, and all rulings, orders, directions, and decisions issued and sanctions imposed under the Rules of the Corporation; and
(2) such other reasonable information with respect to the applicant as the Corporation may require.

(b) The Corporation shall not approve an application for registration of any person who is not eligible to be an associated person of a member under the provisions of Article III, Section 3.

(c) Every application for registration filed with the Corporation shall be kept current at all times by supplementary amendments via electronic process or such other process as the Corporation may prescribe to the original application. Such amendment to the application shall be filed with the Corporation not later than 30 days after learning of the facts or circumstances giving rise to the amendment. If such amendment involves a statutory disqualification as defined in Section 3(a)(39) and Section 15(b)(4) of the Act, such amendment shall be filed not later than ten days after such disqualification occurs.

No member or person associated with a member shall file with FINRA information with respect to membership or registration which is incomplete or inaccurate so as to be misleading, or which could in any way tend to mislead, or fail to correct such filing after notice thereof.

Financial Disclosure

14K. Within the past 10 years:
(1) have you made a compromise with creditors, filed a bankruptcy petition or been the subject of an involuntary bankruptcy petition?
(2) based upon events that occurred while you exercised control over it, has an organization made a compromise with creditors, filed a bankruptcy petition or been the subject of an involuntary bankruptcy petition?
(3) based upon events that occurred while you exercised control over it, has a broker or dealer been the subject of an involuntary bankruptcy petition, or had a trustee appointed, or had a direct payment procedure initiated under the Securities Investor Protection Act?
14L. Has a bonding company ever denied, paid out on, or revoked a bond for you?

14M. Do you have any unsatisfied judgments or liens against you?

such person . . . has willfully made . . . in any application for membership or participation in, or to become associated with a member of, a self-regulatory organization, . . . any statement which was at the time, and in light of the circumstances under which it was made, false or misleading with respect to any material fact, or has omitted to state in any such . . . report . . . any material fact which is required to be stated therein."

[A] willful violation of the securities laws means "intentionally committing the act which constitutes the violation."16 The laws do not require that the actor "also be aware that he is violating one of the Rules or Acts."17 If McCune voluntarily committed the acts that constituted the violation, then he acted willfully.

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Footnote 16: Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965); see also Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (citing Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)); Craig, 2008 WL 5328784, at *4 (finding that respondent willfully violated IM 1000-1 and NASD Rule 2110 by providing false answers on his Form U4).

Footnote 17: Wonsover, 205 F.3d at 414 (citing Gearheart & Otis, Inc. v. SEC, 348 F.2d 798 (D.C. Cir. 1965)).

I understand that this settlement includes a finding that I willfully omitted to state a material facts on a Form U4, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, this these omissions make me subject to a statutory disqualification with respect to association with a member.

8. ln 2009 and 2010, federal and state tax authorities filed three tax liens against Cederberg, as follows:

a. On or about April 14, 2009, the Internal Revenue Service recorded a tax lien against Cederberg in the amount of $33,152. This lien was released in July 2016.

b. On or about May 4, 2009, the State of California recorded a tax lien against Cederberg in the amount of $35,093. This lien remains unsatisfied.

c. On or about January 20, 2010, the State of California recorded a tax lien against Cederberg in the amount of $1,958. This lien remains unsatisfied.

9. Cederberg was aware of each of the above liens and listed them in a Chapter 7 bankruptcy filing made in June 2012 in the United States Bankruptcy Court.

10. The three tax liens constituted material information that Cederberg was obligated to timely disclose on his Form U4.

11. Nevertheless, Cederberg failed to disclose the three tax liens on his Form U4 until April 2, 2015, following an inquiry from FINRA staff.

From June 2003 to June 2010, federal and state authorities filed a series of tax liens against Respondent David Adam Elgart. Elgart did not timely amend his Uniform Application for Securities Industry Registration or Transfer Form ("Form U4") to disclose the outstanding liens, as FINRA By-Laws and rules require.

The primary issue presented in this case is whether Elgart's decade-long failure to amend his Form U4 was willful. Elgart claims it was not. He asserts that he mistakenly believed that because the liens were personal and unrelated to his securities business, he was not required to disclose them. Elgart claims this is also why he incorrectly stated that there were no unsatisfied liens filed against him when he responded to a FINRA staff questionnaire preceding a routine examination of his firm.

The Complaint's first cause of action alleges that Elgart learned about each of the liens close to the time they were filed, "or at least by January 2013." It charges that Elgart's Form U4 was amended 13 times between July 2003 and December 2013, without disclosure of the liens.

The NASD and FINRA By-Laws provide that a person must keep the information on his Form U4 current by filing amendments within 30 days of learning of changes of reportable circumstances. The Complaint's first cause of action charges that Elgart failed to amend his Form U4 in violation of Article V, Section 2(c) of the By-Laws. In addition, the Complaint alleges that his failure violated NASD IM-1000-1, FINRA Rule 1122, NASD Rule 2110, and FINRA Rule 2010.

The Department of Enforcement alleges that Elgart's failure to disclose was willful and the information about the tax liens was material. Finding that Elgart acted willfully and that the information omitted was material would subject him to statutory disqualification from the securities industry, "potentially a more severe sanction than a monetary penalty or temporary suspension." FINRA's By-Laws provide that a person subject to statutory disqualification cannot be associated with any FINRA member firm unless the firm obtains permission from FINRA.

The Complaint's second cause of action alleges that Elgart falsely answered a questionnaire FINRA sent in connection with a routine examination of his firm. In it, Elgart denied he had pending unsatisfied liens. Enforcement alleges that by giving this false answer, Elgart acted in bad faith, misled FINRA, and violated the high standards of commercial honor and just and equitable principles of trade required of him by FINRA Rule 2010.

Elgart's assertion-that he did not act willfully because he was unaware he was required to report-is unconvincing. As explained in a recent FINRA Hearing Panel decision, a respondent's "claim that he did not know that he needed to report [a] bankruptcy is not a valid defense. A registered representative is presumed to know and abide by FINRA Rules." This statement is consistent with recent and long-standing decisions issued by the NAC and the SEC. The NAC recently held, in a decision upheld by the SEC, that a representative's claim that he did not understand the importance of FINRA's Form U4 disclosure requirements was "no defense" to a charge of willful failure to disclose. Rather, a registered representative is responsible "to ensure that his Form U4 is accurate." In reviewing a willful violation, the SEC observed that "securities industry professionals . . . have a responsibility to understand their duties to the investing public and to comply with the applicable rules and regulations which govern their behavior." A claim of not knowing that a fact has to be disclosed fails because "ignorance of the . . . rules is no excuse for their violation."

Elgart claims that although he understood he must disclose "bankruptcies, financial conflicts created by receipt of compensation, certain business affiliations and/or relationships, and almost any kind of regulatory action," he "was simply unaware" he had to report his personal liens. Citing a leading case, he argues that his omissions were the equivalent of "an inadvertent filing of an inaccurate form," and do not support a finding that he "falsely and intentionally denied having ‘any unsatisfied judgments or liens.'"

However, in the case Elgart cites, the SEC found the respondent acted willfully in part because there was "substantial evidence to support the SEC's finding that [the respondent] received the IRS notices . . . and was aware of the tax liens when he filed his . . . Forms U4." Here, Elgart's own testimony provides substantial evidence that he received the notices of the liens and turned them over to his wife and accountant, and was therefore aware of them when they were filed. Furthermore, he testified that he made a conscious determination that he was not required to report them. Contemplating whether he had to disclose the liens, then deciding that he need not because they were filed against him personally,suffices to establish that Elgart acted willfully. Furthermore, Question 14M's plain, unambiguous wording makes unreasonable Elgart's claim that he did not understand he was required to disclose the liens. Because Elgart "knew what he was doing when he did not timely amend the forms to disclose" the liens he knew had been filed, when he answered "No" to Question 14M in the 13 amendments, Elgart acted willfully. Finally, based upon Elgart's demeanor at the hearing, and the evidence presented, the Panel finds his claimed ignorance of Question 14M is not credible; even if it were, it is not a defense.

For these reasons, the Panel concludes that Elgart willfully violated Article V, Section 2(c) of NASD's and FINRA's By-Laws, NASD IM-1000-1, and FINRA Rule 1122 by failing to timely amend his Form U4 to disclose the five unsatisfied liens, and by filing 13 misleading amendments to his Form U4 that did not disclose the liens. By doing so, Elgart engaged in conduct inconsistent with the standard of just and equitable principles of trade in violation of NASD Rule 2110 and FINRA Rule 2010.

12. By this misconduct, Cederberg failed to timely amend his Form U4 to disclose a federal tax lien and two state tax liens in violation of Article V, Section 2(c) of FINRA's By-Laws, NASD IM-1000-1 (for the conduct on or before August 16, 2009), FINRA Rule 1122 (for the conduct on or after August 17,2009), and FINRA Rule 2010.

For willfully failing to timely update his Form U4, in violation of Article V, Section 2(c) of NASD's and FINRA's By-Laws, NASD IM-1000-1, NASD Rule 2110, and FINRA Rules 1122 and 2010, Respondent David Adam Elgart is suspended from associating with any FINRA member firm in any capacity for six months and fined $15,000. Because his misconduct was willful, and the information he failed to disclose was material, he is subject to statutory disqualification.

For providing FINRA with a false answer to a question on a Personal Activity Questionnaire, in violation of FINRA Rule 2010, Elgart is suspended from associating with any FINRA member in any capacity for 30 business days and fined $5,000. The suspensions shall run consecutively.