April 15, 2009
Deputy Secretary, Securities and Exchange Commission 100 F Street, NE Washington, DC 20549
I am a financial advisor, registered principle, RIA and hold insurance licenses in 38 states. who has spent 34 years providing valuable services to and looking out for the interests of my clients. I am writing to express the significant concerns I have regarding certain aspects of FINRA's proposal to revise Forms U4 and U5. While certain parts of the FINRA proposal are warranted and appropriate, my specific concern is with that part of the proposal that would revise Forms U4 and U5 to essentially require the reporting of allegations of sales practice violations made against a registered person that are contained in the body of an arbitration claim or lawsuit in which that person is not named as a party.
In other words, a person would have to report allegations of sales practice complaints made against that person as long as the person was either named in or could be identified from the body of the claim, even if the person is not a party to the lawsuit or arbitration proceeding.
I must strenuously oppose the imposition of this "guilty before charged"
standard which could result in my reputation and livelihood being irreparably damaged by unsubstantiated claims made in a proceeding in which I have not been named as a defendant or respondent. While I strongly believe that people who engage in unscrupulous or misleading sales practices should be aggressively prosecuted and subject to appropriate and meaningful sanctions, the SEC should not allow someone's reputation to be irreparably damaged by unproven claims or allegations made in a lawsuit or arbitration proceeding in which the individual has not been named as a party. Furthermore, a named party to a lawsuit or arbitration has an opportunity to refute the allegations against him and "clear his name."
Someone who has not been named as a party in a lawsuit or arbitration does not have this same opportunity or ability, and any allegations made against him will likely go unanswered and unchallenged. I fear this is a knee jerk reaction to all the publicity of not only the Madoff scam but the other scams that have been uncovered. Why those of us who are innocent of any wrong doing might be tainted by the mear mention of our name is unheard of and as I said a burdon that may be impossible to ever clear up.
This would codify the idea of "guilt by association", which has long been disclaimed in every court it has been tested in. I therefore request that you not approve that part of FINRA's proposal that would require the reporting of allegations of sales practice violations made against a registered person that are contained in the body of an arbitration claim or lawsuit in which that person is not named as a party. Thank you for considering my comments.
Harold A. Schwartz