News and Articles

Category Archives: Articles

Documentary Stamp Taxes: When is a Written Obligation to Pay Money not a Written Obligation to Pay Money?

History of Document Stamp Taxes

 The British are coming! The British are coming! In 1765, Britain’s Parliament enacted The Stamp Act by a vote of 245 to 49 in the House of Commons, and unanimously in the House of Lords. The tax would be effective November 1, 1765.1 The tax was broad. It applied to virtually all documents, including pleadings, wills, bills of lading, or playing cards, whether in paper format or “skin or piece of vellum or parchment….”2 The tax even applied to playing dice. Though repealed less than one year after enactment, the Stamp Act itself led to riots throughout the colonies, from Portsmouth, New Hampshire, to Savannah, Georgia. The Stamp Act represented one of the colonies’ first glimpses of taxes placed on documents. With the colonies’ eventual independence, document stamp taxes continued to exist, both at the state and federal levels. Fast forward 200 years, the Excise Tax Reduction Act of 1965 served to eliminate various document taxes at the federal level, including taxes on stocks, mutual funds, and transfers of stocks and mutual funds. Those repeals were effective January 1, 1966.3 The Excise Tax Reduction Act of 1965 was broad based, eliminating some taxes, while adding others. As an example, it extended federal taxes on alcoholic beverages and tobacco products, but also eliminated taxes on playing cards (13 cents per pack) and coin-operated amusement devices.4

Document stamp taxes are inconsistent among the states. Nebraska enacted its documentary stamp tax upon the passage of the Excise Tax Reduction Act of 1965. The Nebraska tax focuses on deeds to trustees.5 Real estate transfer taxes exist in all but fourteen states.6 The highest such taxes are in New Jersey, New York, Connecticut, and Washington. Florida’s tax on deeds and mortgages is relatively modest. Few states, if any besides Florida, have documentary taxes that broadly apply to most “promissory notes” and “written obligations to pay money.”

Florida’s Documentary Stamp Tax General Overview and History

Unique to Florida, and perhaps more akin to the broader Stamp Act of 1765, is section 201.08, Florida Statutes.7 Section 201.08 was originally enacted in 1931. After being amended in 1936, the statute provided:

On promissory notes, non-negotiable notes, written obligations to pay money, assignment of salaries, wages, or other compensation, made, executed, delivered, sold, transferred, or assigned in the State of Florida, and for each renewal of the same on each one hundred dollars of the indebtedness of obligation evidenced thereby, the tax shall be ten cents.8

Today, section 201.08(1) is divided into sub-sections (a) and (b). Section 201.08(1)(a) provides:

On promissory notes, nonnegotiable notes, written obligations to pay money, or assignments of salaries, wages, or other compensation made, executed, delivered, sold, transferred, or assigned in the state, and for each renewal of the same, the tax shall be 35 cents on each $100 or fraction thereof of the indebtedness or obligation evidenced thereby. The tax on any document described in this paragraph may not exceed $2,450.

The 2023 version of the statute differs from the 1936 version primarily by virtue of the amount of the tax having been increased, and there being a cap on the tax. The cap of $2,450 was instituted on July 1, 2002.9 The amount of the tax charged, though capped, is based upon the face amount of the obligation. Documents taxed under section 201.08(1)(a) are generally not recorded. The tax is paid with the filing of Form DR-228, Documentary Stamp Tax Return For Nonregistered Taxpayers’ Unrecorded Documents. Until the 2002 amendments, there also did not exist a distinction within the statute for documents falling under sub-sections (a) and (b). Documents taxed by section 201.08(1)(b) are filed or recorded, and generally include mortgages and trust deeds.  There is no cap on this tax.  This article will focus exclusively on section 201.08(1)(a), Florida Statutes. Because of the confusion and loopholes concerning 201.08(1)(a), Florida Statutes, one of three things should occur: (1) the Department of Revenue and law enforcement can be more aggressive collecting this tax, (2) the legislature defines the statute’s operative terms, or (3) section 201.08(1)(a) be repealed in its entirety.

Section 201.08(1)(a), Florida Statutes – Confusion and Loopholes

 Section 201.08(1)(a) applies to all “promissory notes” and “written obligations to pay money.” These terms are not defined in the statute nor within Chapter 201. For years, this broad, perhaps vague statute, which on its face applies to all “promissory notes” and “written obligations to pay money”, has created confusion for taxpayers, and a windfall for tax attorneys helping clients avoid this relatively small, but annoying, tax. The basis for these loopholes is section 201.08(6), which provides:

  • Taxability of a document pursuant to this section shall be determined solely from the face of the document and any separate document expressly incorporated into the document. Taxability of a document pursuant to this section shall not be determined by reference to any separate document referenced or forming part of the same contract or obligation unless the separate document is expressly incorporated into the document. When multiple documents evidence, secure, or form part of the same primary debt, tax pursuant to this section shall not be imposed more than once, on the total indebtedness evidenced, notwithstanding the existence of multiple documents.


The position taken by Florida’s Department of Revenue (DO R

in a 2016 Technical Assistance Advisement allows (DOR) the complete avoidance of the tax by dividing a single obligation into multiple documents that do not expressly incorporate each other. The last sentence of section 201.08(6) evidences the view that the purpose of section 201.08(6), added to the statute in 1996, was to ensure that a taxpayer was not taxed multiple times when multiple documents evidence the same debt or obligation.  That view makes sense – a taxpayer should not be taxed multiple times on a single debt or obligation. The DOR has taken the analysis a step further by reasoning that the tax can be completely avoided by dividing a single obligation into multiple documents that do not expressly incorporate each other. If the multiple documents are not “expressly incorporated” into each other, one can argue that none of the documents are taxable. From the perspective of the DOR, a single document that is obviously a “written obligation to pay money” would not be taxable if it lacks any of three elements: (1) that it be in writing; (2) that it state a sum certain in money; and (3) that it be signed by the borrower.10 By dividing an ordinary, single document obligation or transaction into multiple documents, such that the documents are not “expressly incorporated” into each other, the tax can be avoided. Chapter 201, Florida Statutes, does not contain guidance for determining whether multiple documents are expressly incorporated into each other. However, through its regulations, DOR provides guidance on determining whether two documents are expressly incorporated into each other. Rule 12B-4.052 (6) (b), Florida Administrative Code,11 as adopted in 2003,12 provides:

  • Taxability of a written obligation to pay money is determined from the form and face of the document.
    1. Whether a document is taxable is determined by reference to that document and any other document or documents expressly incorporated therein.
    2. A document does not expressly incorporate another document by implication or by mere reference and description of the other document.
    3. Express incorporation occurs when words in a document under examination provide that another document or documents are incorporated into the document under examination.
    4. Following are examples of terminology whereby a document is expressly incorporated into the document under examination.
      1. [document] is incorporated herein;
      2. [document] the terms of which are incorporated herein;
      3. [document] is made a part hereof;
      4. [document] is a part of [this document];
  1. The agreement consists of [this document] and [separate document] the same as if it were fully set forth herein;
  2. [document] shall become a part of [document];
  3. [document] and [document] constitute a single
  4. Following are examples of terms in a document under examination that do not expressly incorporate another document, unless the document under examination otherwise contains language that meets the criteria of subparagraphs (b)3. or (b)4. above.
    1. In the attachment hereto;
    2. Is subject to;
    3. Is subject to the terms of;
    4. Pursuant to;
    5. Pursuant to the terms of;
    6. As set forth in;
    7. Reference is made to;
    8. Governed

This rule may be viewed as nonsensical because it can turn a document that clearly is intended to create a single “written obligation to pay money” into something that is not a “written obligation to pay money.” All that is required for this transformation is the use of the terms in Rule 12B- 4.052(6)(b)(5). This Rule arguably provides the “magic” words for arguing that multiple documents do not incorporate each other. The use of the phrase “expressly incorporated” in both section 201.08(6), Florida Statutes and Rule 12B-4.052 (6)(b)(5), Florida Administrative Code, has served to create a loophole through which taxpayers have divided single obligation transactions into multiple documents for the sole and exclusive purpose of avoiding the tax.

The use of this mechanism is illustrated in Technical Assistance Advisement 16B4-001, 2016 Fla. Tax LEXIS 16. A Technical Assistance Advisement is a binding opinion issued by the Florida Department of Revenue. In this case, the taxpayer loaned money for auto loans. According to the taxpayer, the loan transaction was divided into five distinct documents, including: an Auto Express Loan Agreement, a Security Agreement, a Truth-in-Lending Statement, an Auto Express Loan Check, and a Loan Modification Rider. None of the documents expressly incorporated the other documents. While the Rider contained a sum certain of money, it did not contain a promise to pay or the consumer’s signature. The Department stated as follows13:

  • The Note contains the amount financed and a promise to pay; however, it does not contain the signature of the Additionally, the Note does not expressly incorporate any other document.
  • The Check contains a promise to pay and requires the signature of a borrower; however, it does not contain a sum certain in money. Though the Check makes reference to the Note, it does not expressly incorporate the Note or any other
  • The Rider contains the amount financed; however, it does not contain an unconditional promise to pay a sum certain in money or the signature of the borrower. Additionally, the Rider does not expressly incorporate any other

The Department’s reasoning has the ring of a legal contortionist. The entire basis of the Department’s reasoning is premised upon the Department’s own administrative rules, rather than the plain language of the applicable statute, section 201.08(1)(a). All of this begs the question of whether a promissory note, in this case called an Auto Express Loan Agreement, would be enforceable in court if it did not contain a specific reference to the amount of the loan.14 Arguably, the promissory note would be void for vagueness.15 The putative lender must decide whether attempting to avoid section 201.08(1)(a)’s tax is worth risking have a set of documents that a court might not enforce.

In an earlier auto loan case, the Department of Revenue, in a Technical Assistance Advisement, ruled that section 201.08(1)(a)’s tax would not be owed because none of the five documents that comprised a single auto loan met the required elements.16 Those three elements –

– (1) an unconditional written promise to pay, (2) a sum certain in money, and (3) the signature of the borrower — are not mandated as such anywhere within section 201.08. Rather, section 201.08(1)(a)’s focus is whether the document at issue is a “promissory note” or a “written obligation to pay money.” It makes little sense for a document, or series of documents, to be interpreted as something other than a “written obligation to pay money” for tax purposes, but at the same time take the view that there is an enforceable “written obligation to pay money” for litigation purposes.

The hornet’s nest created by Rule 12B-4.052 (6)(b)(5), Florida Administrative Code is self- evident.17 In essence, the Rule seeks to create a definition for the term “expressly incorporated” as used in section 201.08(6), Florida Statutes. The role of a state agency, however, is not to define legislative terms – that task is generally the province of the legislature. Chapter 201 does not contain any definitions. The terms “promissory note”, “written obligation to pay money”, and “expressly incorporated” were never defined by the Legislature. As such, when interpreting a statute, “[i]t is a fundamental principle of statutory construction that where the language of a statute is plain and unambiguous there is no occasion for judicial interpretation.”18 Arguably, the Rule represents an agency’s “invalid exercise of delegated legislative authority.”19 In order for the Rule to be considered invalid, any of six criteria need be met. If a rule is vague or arbitrary, it may be deemed invalid. A rule is considered arbitrary “if it is not supported by logic or the necessary facts.”20

Whether a document constitutes either a “promissory note” or a “written obligation to pay money” should not be especially complex. Moreover, where a single obligation is evidenced by multiple documents, regardless of whether they “expressly incorporate” each other, it is reasonable to conclude that any “written obligation to pay money” is taxable. The concern addressed by section 201.08(6), Florida Statutes, is to avoid there being multiple taxes on the same obligation, simply because they are evidenced by multiple documents. On occasion ambiguity exists among multiple documents as to the dollar amount of the underlying obligation, i.e., on what dollar amount should the tax be calculated? In a case decided prior to the enactment of section 201.08(6), Florida Statutes, Computer Sales Int’l v. State Department of Revenue,21 a dispute existed between the Florida Department of Revenue and a taxpayer. The dispute revolved around whether a tax was owed pursuant to section 201.08(1), Florida Statutes (1983). The underlying business transaction was comprised of three documents: a Master Lease Agreement, an Equipment Schedule, and a Certificate of Acceptance. The Court rejected the notion that for purposes of determining whether a tax was owed the documents must specifically incorporate each other by reference. Rather, relying upon general rules of contract interpretation, the Court stated that the “rule is clear that when a writing expressly refers to and sufficiently describes another document – in this case, the Certificate of Acceptance – the other document is to be interpreted as part of the writing.”22 Indeed, the Court noted, instruments executed on different days may be regarded as one contract and interpreted together. Whether the outcome in Computer Sales Int’l would have changed following the enactment of section 201.08(6), is unclear.23

Whether Section 201.08(1)(a), Florida Statutes, is Constitutionally Void Due to Vagueness or Overbreadth

 There exists a reasonable argument that section 201.08(1)(a), Florida Statutes, is violative of the Florida Constitution as vague or overbroad. Specifically, the phrases “promissory note” and “written obligation to pay money”, within the statute’s context, are arguably vague or overbroad.24 Whether they are sufficiently vague and/or overbroad for constitutional purposes is debatable. In Southeastern Fisheries Assoc. v. Department of Natural Resources, 453 So. 2d 1351 (Fla. 1984), the Florida Supreme Court considered the constitutionality of Florida’s fish trap law, section 370.1105, Florida Statutes (Supp. 1980). Although found constitutional, the Court made it clear that there existed a distinction between analyses for determining whether a statute was void on the one hand as vague, or on the other hand, as overbroad.25 With regard to overbreadth, the Court stated:

The overbreadth doctrine applies only if the legislation “is susceptible of application to conduct protected by the First Amendment.” Carricarte v. State, 384 So. 2d 1261, 1262 (Fla.), cert. denied, 449 U.S. 874, 101 S. Ct. 215, 66 L. Ed. 2d

95 (1980) (citing Dandridge v. Williams, 397 U.S. 471, 25 L. Ed. 2d 491, 90 S. Ct.

1153 (1970)). See also McKenney v. State, 388 So. 2d 1232 (Fla. 1980); State v. Ashcraft, 378 So. 2d 284 (Fla. 1979). See generally Note, The First Amendment Overbreadth Doctrine, 83 Harv. L. Rev. 844 (1970).

In contrast, the Court stated, the vagueness doctrine “was developed to assure compliance with the due process clause of the United States Constitution.”26 A statute is constitutionally void for vagueness if it:

fails to give adequate notice of what conduct is prohibited and which, because of its imprecision, may also invite arbitrary and discriminatory enforcement. In determining whether a statute is vague, common understanding and reason must be used. Where a statute does not specifically define words of common usage, such words must be given their plain and ordinary meaning.27

If a document has all the trappings of a promissory note, is it still a promissory note if is called a “Loan Agreement” or if it is given a title other than “promissory note”? Likewise, what is a “written obligation to pay money”? Is a handwritten IOU for a sum certain a “written obligation to pay money” for tax purposes? There is no shortage of caselaw addressing various legal issues involving section 201.08, Florida Statutes. Many of those cases address whether the payment of the documentary stamp tax is a condition precedent to suing on the underlying obligation.28 Assuming there are numerous taxpayers not paying the tax, is this due to intentional evasion, or is it due to not understanding a vague statute?

Examples of statutes found void based upon the vagueness doctrine include section 893.13(1)(i), Florida Statutes (Supp. 1990).29 In Brown v. State, the Florida Supreme Court found that the phrase “public housing facility” was unconstitutionally vague. The statute at issue imposed criminal penalties on persons selling, delivering or manufacturing controlled substances within 200 feet of a “public housing facility.” The Court found that this phrase did not give “adequate notice of what conduct is prohibited and, because of its imprecision, may invite arbitrary and discriminatory enforcement.”30

In Bischoff v. Florida,31 the plaintiffs challenged the constitutionality of sections 316.2045 and 316.2055, Florida Statutes. These statutes were directed at rights to public protest in certain scenarios. After an evidentiary hearing, a United States Magistrate Judge recommended that the State’s Motion to Dismiss be converted to a Motion for Summary Judgment, and that the statutes be declared unconstitutional as content based and vague. The District Court agreed.32 With respect to the vagueness argument, the statute included two undefined terms, “solicit” and “political campaigning.” The purpose of the vagueness doctrine, the Court noted, is to warn individuals that their conduct may have criminal consequences. Section 201.08(1)(a) is similar, in that a failure to pay a required tax on either a “promissory note” or a “written obligation to pay money” may have criminal consequences.33 Failure to pay the tax is a misdemeanor in the first degree, punishable by up to one year in prison.34 Citing United States Supreme Court precedent, the Court stated that the test for vagueness is “whether the language conveys sufficiently definite warning as to the proscribed conduct when measured by common understanding and practices.”35

Perhaps the strongest argument in support of the view that section 201.08(1)(a) is void for vagueness is the statute’s “arbitrary … enforcement.”36 Numerous industries routinely use promissory notes in their day-to-day business. One of those industries is the broker-dealer, or stockbroker, community. Typically, when these firms recruit lateral hires, the candidates are enticed with large, up-front loans. Here is how they work. A financial advisor will be offered a loan based on a percentage of the advisor’s trailing twelve-month gross production at his or her prior firm. The percentage can be 300% or more.37 If an advisor is generating $1 million in gross production, the advisor may be offered as much as $3 million in the form of loan. The loan terms vary in length from firm to firm. It is not uncommon for the terms to be longer than 10 years.38 Simultaneous with the signing of the note, the financial advisor will also sign a bonus agreement. The bonus agreement will be the same length as the note. The payments due to the financial advisor will be equal to the note payments due to the employer.39 In other words, the note and the bonus agreement are intended to wash each other out.

Given that the maximum tax due on a note, or written obligation to pay money, may not exceed$2,450.00, one would think that broker-dealers, as well as other businesses that routinely use notes, would as a matter of routine pay the relatively small tax. While some businesses pay the tax, many do not. In the broker-dealer community, it is perceived that numerous firms never pay the documentary stamp tax when they offer promissory notes to lateral hires. Broker-dealers have gotten away with this tax avoidance for several reasons. First, when seeking to enforce the notes, broker-dealers sue their former employees in the Financial Industry Regulatory Authority’s40 arbitration forum. There is mandatory arbitration in the securities industry.41 Because these cases are rarely in court, a judge will not be publishing a written opinion addressing whether the tax was paid, or its significance. The arbitration process provides a level of secrecy that protects Florida’s broker-dealer community. Second, because arbitration is an equitable forum,42 when the defense of non-payment of the tax is proffered, firms believe that arbitrators will ignore the issue, and treat non-payment of the tax as either a technicality, or simply outside their province.43 Third, when pressed, a broker-dealer can simply cure the issue in a specific case and pay the tax and any late fees. Florida courts unanimously agree that once the tax is paid, there no longer exists an argument that a taxpayer has failed to satisfy all conditions precedent.44 In one instance in a FINRA arbitration, in response to the argument that a note claim should be dismissed due to non-payment of the tax, the Respondent agreed to pay the tax by the end of the business day. Based upon this agreement, the arbitrator entered an award enforcing the note.45 Finally, and perhaps most importantly, the Department of Revenue has not been aggressive with forcing the broker-dealer community to pay this tax. One reason for the Department’s passivity is the size of the tax. For each note, the tax may not exceed $2,450. This is a drop in the bucket compared with what the Department of Revenue collects monthly on deeds. For example, in January 2023, the Department collected $173,690,477.11 million in documentary stamp taxes on deeds.46 Deeds are taxed pursuant to section 201.02, Florida Statutes, at a rate of 70 cents per $100 of the underlying obligation.47 For the same month, the Department collected $71,356,378.67 million on documentary stamps on all documents to which the 35-cent tax applies.48 It is impossible to know what portion of the $71 million is from unrecorded promissory notes or other “written obligations to pay money.” These figures are down 44.47% and 50.73%, respectively, over January 2022 collections.49 It is conceivable that any failure to enforce section 201.08(1)(a) is the result of the putative collections being perceived as less significant than taxes collected on deeds.

From the taxpayer’s perspective, the monetary cost of failing to pay the tax is relatively small. The person responsible for paying the tax will be required to pay the tax itself, a penalty that cannot exceed 50% of the tax, or if the Department of Revenue finds fraud, there is an additional penalty of 200% of the deficiency.50 If the original tax was $2,450, the maximum amount for which a taxpayer can be liable is $7,350 per note, inclusive of penalties. In addition to monetary exposure, there is criminal exposure. The failure to pay the required tax is treated as a first-degree misdemeanor, subjecting a person to up to one year in jail.51 Research does not reveal whether anyone has ever been criminally charged with this tax violation.


Research also does not reveal whether section 201.08(1)(a), Florida Statutes, has ever been challenged as unconstitutional based upon the vagueness doctrine. Clarifying or narrowing the scope of the statute would serve to educate taxpayers regarding the taxability of certain documents, and in particular, promissory notes. Unfortunately, publicly available data does not reflect precisely how much money is collected specifically from promissory notes, as opposed to “written obligations to pay money, or assignments of salaries, wages, or other compensation….”52) Assuming the legislature does not have an appetite for reviewing and revising the statute, the Department of Revenue should aggressively enforce the statute to protect those taxpayers who have been paying the tax for years, if not decades, and to simply maximize the funds in the public coffers. Finally, the statute could simply be clarified through amendments defining the statute’s operative terms, “promissory note” and “written obligations to pay money.”


1 Massachusetts, Florida, and Jamaica also passed stamp taxes in the mid-18th century. Edmund

  1. and Helen M. Morgan, The Stamp Act Crisis: Prologue to Revolution 77 (Chapel Hill: University of North Carolina Press, 3rd ed., 1995); Yale Law School, (last visited February 9, 2023)

2 Yale Law School, (last visited February 9, 2023)

3 (last visited February 14, 2023).

4 (last visited February 14, 2023).

5 Neb. Rev. Stat. Ann § 76-901 (LexisNexis, Lexis Advance through all Acts of the 2nd Regular Session of the 107th Legislature (2022) and 2022 ballot propositions).


7 Fla. Stat. Ann. § 201.02 (LexisNexis, Lexis Advance through the 2022 regular and extra sessions), Tax on deeds and other instruments relating to real property or interests in real property, is beyond the scope of this article.

8 CGL 1936 Supp. 1279 (111).


9 2002 Fla. ALS 26, 2002 Fla. Laws ch. 26, 2002 Fla. SB 462, 2002 Fla. ALS 26, 2002 Fla. Laws

  1. 26, 2002 Fla. SB 462.

10 2016 Fla. Tax LEXIS 16, 2016 TAX FALR 3.

11 Fla. Admin. Code Ann. r. 12B-4.052 (Lexis Advance through January 23, 2023)

12 2002 FL Regulation Text 26690

13 2016 Fla. Tax LEXIS 16, 2016 TAX FALR 3

14 A frequently litigated issue is whether a “promissory note” is enforceable when the documentary stamp tax has not been paid. See e.g., Wilmington Tr., N.A. v. Serpa, 346 So. 3d 1218 (Fla. Dist. Ct. App. 2022); Solis v. Lacayo, 86 So. 3d 1147 (Fla. Dist. Ct. App. 2012); Somma v. Metra Elecs. Corp., 727 So. 2d 302 (Fla. Dist. Ct. App. 1999); Glenn Wright Homes LLC v. Lowy, 18 So. 3d 693, 696 (Fla. Dist. Ct. App. 2009); ; Ben Fu Li v. Jackie Tan, No. 17- cv-60363, 2017 U.S. Dist. LEXIS 87302 (S.D. Fla. June 7, 2017).

15 Southeastern Fisheries Asso. v. Dep’t of Nat. Res., 453 So. 2d 1351, 1353 (Fla. 1984).

16 2008 Fla. Tax LEXIS 11, 8 TAX FALR 41.

17 Fla. Stat. Ann. § 213.05 (LexisNexis, Lexis Advance through the 2022 regular and extra sessions) provides the Department of Revenue with rulemaking authority.

18 Forsythe v. Longboat Key Beach Erosion Control Dist., 604 So. 2d 452 (Fla. 1992); see also Van Pelt v. Hilliard, 75 Fla. 792, 78 So. 693 (1918).

19 Fla. Stat. Ann. § 120.52 (8) (LexisNexis, Lexis Advance through the 2022 regular and extra sessions).

20 Fla. Stat. Ann. § 120.52 (8)(d) and (e) (LexisNexis, Lexis Advance through the 2022 regular and extra sessions).

21 Comput. Sales Int’l v. State Dep’t of Revenue, 656 So. 2d 1382 (Fla. Dist. Ct. App. 1995).

22 Id. at 1384.

23 Comput. Sales Int’l v. State Dep’t of Revenue, 656 So. 2d 1382 (Fla. Dist. Ct. App. 1995).

24 A promissory note is “[a]n unconditional written promise, signed by the maker, to pay absolutely and in any event a certain sum of money either to, or to the order of, the bearer or a designated person.” Black’s Law Dictionary, 11th edition, 2019.

25 Southeastern Fisheries Asso., 453 So. 2d at 1353 (Fla. 1984); see also Simmons v. State, 944 So. 2d 317 (Fla. 2006).

26 Southeastern Fisheries Asso., 453 So. 2d at 1353, cited in Martin v. State, 207 So. 3d 310, 317 (Fla. Dist. Ct. App. 2016).

27 Id. at 1353.

28 Wilmington Tr., N.A. v. Serpa, 346 So. 3d 1218 (Fla. Dist. Ct. App. 2022); Solis v. Lacayo, 86 So. 3d 1147 (Fla. Dist. Ct. App. 2012); Somma v. Metra Elecs. Corp., 727 So. 2d 302 (Fla. Dist. Ct. App. 1999); Glenn Wright Homes LLC v. Lowy, 18 So. 3d 693, 696 (Fla. Dist. Ct. App.

2009); Ben Fu Li v. Jackie Tan, No. 17-cv-60363, 2017 U.S. Dist. LEXIS 87302 (S.D. Fla. June 7, 2017).

29 Brown v. State, 629 So. 2d 841 (Fla. 1994).

30 Id at 842.

31 Bischoff v. Florida, 242 F. Supp. 2d 1226 (M.D. Fla. 2003).

32 Id. at 1235 – 1236.

33 Id. at 1236.

34 Fla. Stat. Ann. § 201.17 (LexisNexis, Lexis Advance through the 2022 regular and extra sessions).

35 Bischoff v. Florida, 242 F. Supp. 2d 1226, 1236 (M.D. Fla. 2003).


36 Southeastern Fisheries Asso., 453 So. 2d at 1353 (Fla. 1984).


fresh-highs/ (last visited Feb. 10, 2023)


Paper.pdf (last visited February 14, 2023).

39 (last visited February 10, 2023).

40,- What%20We%20Do&text=To%20protect%20investors%20and%20ensure,in%20the%20market

%20with%20confidence. (last visited on February 10, 2023)

41 FINRA Rule 13200. Required Arbitration. case-resources/13000 (last visited February 10, 2023).

42 FINRA Dispute Resolution Services Arbitrator’s Guide, p. 9 (January 2023 Edition).

43 In an Award issued on May 31, 2022, a Florida arbitration panel found that the broker- dealer/lender owed the tax, but that the failure to pay the tax did not bar enforcement of the underlying obligation. Because FINRA arbitrators are not required to issue detailed opinions unless both parties request a detailed opinion, it is impossible to know how often the non- payment of the documentary stamp tax is raised as a defense in these cases; (last inspected February 13, 2023).

44 See e.g., Wilmington Tr., N.A. v. Serpa, 346 So. 3d 1218 (Fla. Dist. Ct. App. 2022); Solis v. Lacayo, 86 So. 3d 1147 (Fla. Dist. Ct. App. 2012); Somma v. Metra Elecs. Corp., 727 So. 2d 302 (Fla. Dist. Ct. App. 1999); Glenn Wright Homes LLC v. Lowy, 18 So. 3d 693, 696 (Fla. Dist. Ct. App. 2009).


20120127.pdf (last inspected February 13, 2023).

46 (last inspected February 13,


47 Fla. Stat. Ann. § 201.02 (LexisNexis, Lexis Advance through the 2022 regular and extra sessions)

48 (last inspected February 13,


49 (last inspected February 13,


50 Fla. Stat. Ann. § 201.17(2)(b) (LexisNexis, Lexis Advance through the 2022 regular and extra sessions).

51 Fla. Stat. Ann. § 775.082 (4)(a) (LexisNexis, Lexis Advance through the 2022 regular and extra sessions) and Fla. Stat. Ann. § 201.17 (LexisNexis, Lexis Advance through the 2022 regular and extra sessions).

52 Fla. Stat. Ann. § 201.08 (LexisNexis, Lexis Advance through the 2022 regular and extra sessions).

FINRA Interference with Estate Planning

Read Full Article (PDF)

Financial exploitation of the elderly is rampant in the United States.  The elderly are routinely exploited by those close to them, such as family and friends, caregivers, financial advisors, as well as by scammers trying to sell them products they do not need.  These products include elaborate home security systems and other home improvements.

An example of a new type of elder abuse is that which will be the by-product of the Financial Industry Regulatory Authority’s (hereafter “FINRA”) well intended rules designed to curb financial exploitation.  Effective February 2018, FINRA Rule 4512 requires registered representatives to make reasonable efforts to obtain the name of and contact information for a “trusted contact person” (hereafter “TCP”) upon the opening of a retail account, or when updating account information for a retail account.  Pursuant to the Rule, “the member is authorized to contact the trusted contact person and disclose information about the customer’s account to address possible financial exploitation, to confirm the specifics of the customer’s current contact information, health status, or the identity of any legal guardian, executor, trustee or holder of a power of attorney….”  The TCP is intended to be a resource for the FINRA member in administering the customer’s account, protecting assets and responding to possible financial exploitation.  Unfortunately, this Rule will serve to alert nefarious third parties that Aunt Betty or Uncle Bernie had significantly more assets than relatives may have believed.  But for Rule 4512, certain people (the putative “villains”) will be alerted to assets they did not know existed.  Opportunity and motive to steal have been created by this new Rule.  The Rule may also interfere with pre-existing estate plans.

Because FINRA Rule 4512 does not require the customer to identify the TCP, how should we as lawyers advise our clients?  Do we tell them to refuse to identify TCP’s?  Do we encourage clients to identify TCP’s, and if so, do we do it in writing?  Should we explain to our clients the pros and cons of designating TCP’s?  Do we incorporate the TCP concept in estate planning documents?  Do we revise Durable Powers of Attorney to address issues that will arise from a potentially conflicting TCP?  Do we provide copies of Durable Powers of Attorney to financial advisors?  Do we routinely write to financial advisors to find out if our clients have already designated a TCP?  If our clients have designated a TCP, is the TCP consistent with the client’s choice of Estate Executor or trustee?  Do we want to put into place mechanisms that prevent financial advisors from changing TCP’s without attorney involvement?


Evaluating professional designations utilized by financial advisors

Read Full Article (PDF)

So, a local financial advisor hands you a business card identifying one or more of the following professional designations: CFP, CFPN, CPFA, CMA, CFMP, CDP, and/or CEA.  Should you be impressed?  What do the letters stand for?  Who are the issuing organizations?  Do the issuing organizations exist?  Were there prerequisites for obtaining the designations?  Were examinations required?  What types of examinations?  Was a college degree required?  Are there continuing education requirements?  Are the continuing education requirements meaningful?  Can you verify the authenticity of the designation?  Does the issuing organization address customer complaints?  Does the issuing organization publish a list of disciplined designees?

Confused?  You should be.  According to records maintained by FINRA, there are more than 150 known so called “professional designations” either in use today by financial advisors, or that have previously been used by financial advisors.  Some of those designations look, sound and feel remarkably similar to each other.  As an example, what is the difference between a CFP and a CFPN?  Are they issued by the same organization?  Are they connected with each other in any way?  They are not.  “CFP” is a designation known as “Certified Financial Planner.”  It is issued by the Certified Financial Planner Board of Standards, Inc.  “CFPN” is known as “Christian Financial Professionals Network Certified Member.”  Though the abbreviations are similar, that is where the similarities end.  The prerequisites for earning the Certified Financial Planner designation are indeed rigorous.  The prerequisites for the “CFPN” designation are less clear.  According to FINRA, one is eligible for the CFPN certification with 10 years of full-time financial experience, signing a “Statement of Faith”, taking three training sessions, and passing a closed-book exam.  Links on the FINRA website to the Christian Financial Professional Network take you to  It is unclear whether this organization still exists, notwithstanding the fact that FINRA’s website states that the designation is currently offered.  Web searches lead to an entity called Kingdom Advisors, which offers what it calls a Certified Kingdom Advisor designation.  According to its website, its designation “allows you to work with someone who has committed and been trained to be a person of character who, from a biblical worldview, serves you with biblical financial advice so that you can confidently navigate financial decisions as a faithful steward.”

It is up to each lawyer to diligently determine the value, if any, to place on certain designations.  Both the American National Standards Institute and the National Commission for Certifying Agencies accredit certain designations.  The following link lists the accredited designations: .  FINRA also maintains a list of designations about which it is aware: .  It behooves any attorney who is referring clients to financial advisors to investigate their backgrounds.  One piece of this investigation is verifying any claimed designation, and assessing its value.  The CFP Board’s website contains a section dedicated to verifying whether one’s CFP designation is in good standing.  It takes about 5 minutes to confirm this particular designation.  Time well spent.

When Does “No” Mean “Yes”? With Expungements, Of Course

Read Full Article (PDF)

Putative financial advisors seeking to enter the securities industry are required to register with the Financial Industry Regulatory Authority, otherwise known as FINRA.  The required registration application is called the Form U4.  Question 14A(1)(b) asks whether the applicant has “ever been charged with a felony.”[i]  Question 14I asks a series of questions about whether the applicant has “ever” been the subject of certain customer complaints or arbitrations.  While these questions are unambiguous, the answers may not be when the applicant has previously had a felony or a customer complaint “expunged” from his or her past.  If an applicant has been charged with a felony, or has been the subject of a customer complaint, can the applicant lawfully deny either occurrence when completing the U4?

Prior Felony Charges

Being charged with a felony is problematic enough when it occurs.  It can remain problematic for years to come, whether in the context of loan applications, housing applications or employment applications.  In the context of the financial services, or securities industry, it is especially serious at multiple levels.  First, the Form U4 is essentially a job application.  In many cases, the Form U4 represents the first step in the application process, with several more steps before an employment offer is extended.  If in step 1, an applicant discloses a felony charge from earlier in life, will that applicant ever see step 2 in the employment application process?  Will the second interview even occur?  Will a hiring manager accept an explanation such as, “It was mistaken identity.  Once the prosecutor realized that I was the wrong guy, the larceny charges were dropped.”  The answer is not likely.  In the securities industry, unlike any other industry or profession, the disclosure of a prior felony charge, regardless of whether it led to a conviction or was voluntarily dismissed by a prosecutor, will be part of one’s permanent public record.  That public record appears on the “BrokerCheck®” portion of FINRA’s website.  It is available to anyone with an Internet connection.  In this illustration, the applicant’s CRD report will permanently reflect that he was charged with larceny.[ii]  The CRD report will also reflect that the charges were dropped.  Indeed, FINRA aggressively promotes to the general public that investors should investigate their broker.  In one advertisement, FINRA writes, “You Check Everything.  So Why Not Check Your Broker?  Start Searching.”  So, from the perspective of a hiring manager, under what circumstances would it be reasonable to hire a person who will forever be forced to wear the “felony badge,” especially when compared with hiring the similarly situated person without it?  The answer is that the otherwise innocent (but perhaps higher risk) applicant will rarely receive the job offer.  That applicant’s “felony badge,” or label, will essentially be a target on his or her back, even if wrongfully charged or even acquitted.[iii]

A dilemma faced by any job applicant is whether to disclose the earlier felony charge.  In the securities industry, the applicant completing a U4 application is required to answer whether he or she has ever been charged with a felony.  It is easy to rationalize that the employer will never discover the 10-year-old felony charge that was dropped two days after being brought.  In most industries, including the securities industry, that would be a mistake.  Every U4 applicant is fingerprinted.  The fingerprint cards are then sent to law enforcement.  The felony charges will thus be discovered by either state or federal authorities.  The intentional misrepresentation of a fact on a U4 will lead to a statutory disqualification from the securities industry.  In other words, don’t let the door hit you on the way out.

The more difficult dilemma is faced by the “innocent felon”—the one whose criminal record has been expunged by a court of law.  Does a judicially granted expungement, or expunction, in the context of an employment application, give one the right to dishonestly answer “no” when the truthful answer is “yes”?  The answer is not always apparent.  Rather, it is a function of (1) the specific language used in the application question, (2) state law, (3) FINRA policy, or (4) a combination of these factors.

In general, if a Walmart job application asks whether an applicant has ever been charged with a felony, under what circumstances could an applicant respond in the negative, when in fact the applicant had been charged with a felony?  The only circumstance in which the applicant could deny the prior felony charge is if the applicant received a judicial expungement, or by some other operation of law.  In order to understand the specific rights conferred by an expungement, one must look at state law.

An example of a licensing application that provides for no wiggle room is the Nebraska State Bar Application.  Questions 21 and 22 of the application, like question 14 of the U4, ask whether an applicant has ever been charged with violations of any law in a criminal context.  Unlike the U4, however, the Nebraska State Bar Application contains the following language: “NOTE: Include matters that have been dismissed, expunged, subject to a diversion or deferred prosecution program, or otherwise set aside.”  Accordingly, given the very specific language on the Bar Application, an applicant would presumably be required to disclose a prior felony charge.[iv]

The U4, unlike the Nebraska Bar Application, does not contain any similar note or instruction.  It is silent.  One must therefore look to applicable law to determine what rights an applicant acquired upon obtaining a lawful, court ordered expungement.  Nebraska’s expungement statute, R.R.S. Neb. § 29-3523, provides a mechanism for obtaining an expungement of a criminal history.  The statute does not, however, describe the rights one acquires upon receiving a criminal history record expungement, or expunction.  Those rights are not always clear.  Accordingly, the Nebraska resident completing a Form U4 may be left with nothing more than FINRA’s guidance on the issue.[v]  Residents of other states must look to their home states’ statutes in order to understand their expungement rights, as well as its limitations.

In New York, when an expungement is judicially granted, “the arrest and prosecution shall be deemed a nullity and the accused shall be restored, in contemplation of law, to the status he occupied before the arrest and prosecution.  The arrest or prosecution shall not operate as a disqualification of any person so accused to pursue or engage in any lawful activity, occupation, profession, or calling.  Except where specifically required or permitted by statute or upon specific authorization of a superior court, no such person shall be required to divulge information pertaining to the arrest or prosecution.”  NY CLS CPL § 160.60.  In other words, if a person is entitled to the statutory sealing of a criminal history in New York, or expungement, it would be reasonable to deny the existence of a prior felony charge when completing a U4.

Florida’s expunction statute, § 943.0585, provides that an expungement recipient “may lawfully deny or fail to acknowledge the arrests covered by the expungement record,” except under certain explicitly defined circumstances.  Those circumstances include candidates for admission to The Florida Bar, those seeking to be employed by the Florida Department of Children and Families, and other categories.  The Florida legislature did not create an exception for applications for securities licenses (the U4) that are filed with FINRA and the Florida Office of Financial Services.  Accordingly, a Florida resident who obtains a lawful, court ordered expungement may reasonably believe they have the right to “lawfully deny” ever having been charged with a felony.  In responding to the question of whether the Florida applicant has ever been charged with a felony, it would not be surprising that Florida applicants would check the “no” box.  Moreover, it would be reasonable for the Florida applicant to believe that he or she does not need to ask for FINRA’s permission, through its Registration and Disclosure Department, to answer “no.”  After all, the entire point of conferring the expungement is to provide individuals with a fresh start, or clean slate.  Being forced to ask FINRA for permission to lawfully answer “no” is tantamount to letting the cat out of the bag—both FINRA and the prospective employer will have information to which they are not entitled.  That is manifestly unfair to the individual who obtained a lawful expungement.  Furthermore, there exists the risk that FINRA will not uniformly apply its unpublished criteria for determining whether one can deny the existence of a felony charge.

In Connecticut, an individual who receives a judicially granted erasure of criminal records “shall be deemed to have never been arrested within the meaning of the general statutes with respect to the proceedings so erased and may so swear under oath.”  Conn. Gen. Stat. § 54-142a.  The Connecticut Supreme Court noted that one entitled to an erasure shall be “placed in the same position he would have occupied had he not been arrested.” New Haven v. AFSCME, Council 15, Local 530, 208 Conn. 411, 544 A.2d 186 (Conn. 1988).

Galligan v. Edward D. Jones & Co., 2000 Conn. Super. LEXIS 3041, 2000 WL 1785041 (Conn. Super. Ct. Nov. 13, 2000) involved a financial advisor who was terminated by Edward D. Jones & Company, a Missouri based broker-dealer.  Mr. Galligan claimed that he was terminated after denying on his U4 that he had previously been convicted or pled guilty or no contest to certain drug related charges.  Pursuant to Conn. Gen. Stat. § 54-142a, Mr. Galligan claimed that his criminal record had been erased, and that as a matter of law, he was entitled to deny that the arrest ever occurred.  In the context of denying Edward D. Jones’s Motion for Summary Judgment on the claim for wrongful termination, the court applied Missouri law in holding that two exceptions to Missouri’s employment-at-will policy existed under these facts.  First, the court held that a jury could find that Mr. Galligan was terminated for his refusal to perform an illegal act.  Under these facts, the “illegal act” was the employer’s effort to compel Mr. Galligan to check the “yes” box when he believed he was entitled to check the “no” box on the U4.  Second, the court held that a jury could reasonably find that the “discharge [was] because the employee participated in acts that public policy would encourage….”[vi]  This case clearly illustrates how quickly one can lose their career by what is perceived to be an inaccurate or misleading answer to a U4 question.  These scenarios will only continue, given the lack of uniformity among the various state statutes, and the difficulty of interpreting those statutes in the context of U4 applications that can conceivably be submitted to more than 50 states and territories.[vii]

As another example of the disparity, West Virginia’s expungement statute provides that upon expungement, “the proceedings in the matter shall be deemed never to have occurred.  The court and other agencies shall reply to any inquiry that no record exists on the matter.  The person whose record is expunged shall not have to disclose the fact of the record or any matter relating thereto on an application for employment, credit or other type of application.”  W. Va. Code § 61-11-25.

Maryland Criminal Procedure Code Ann. § 10-109 defines one’s post-expungement rights in connection with employment applications.  Pursuant to Maryland law, a “person need not refer to or give information concerning an expunged charge when answering a question concerning: (i) a criminal charge that did not result in a conviction….”  Maryland’s statute, like Nebraska’s statute, is not as clear as the statutes in Florida, New York, Connecticut and West Virginia.  The expungement statutes in those states transform criminal records into nullities, thereby giving one the right to deny that the event ever occurred.  Notwithstanding the Maryland statute’s ambiguity, a Maryland expungement recipient would be reasonable in concluding that he or she may deny the existence of a prior felony charge on a U4 application.  However, simply because this position might be reasonable, adopting it may be akin to “cutting off your nose to spite your face.”  In the financial services industry, the employer is likely to learn of the expunged charge through the fingerprint search process.  The U4 applicant therefore has a dilemma—whether to stand on principle and deny the existence of an expunged event, or simply disclose the event, knowing that it will ultimately be revealed in the fingerprint search.[viii]

It should be noted that some states do not have statutory expungement mechanisms for the expungement of non-conviction records.[ix]  Other states have expungement mechanisms that confer limited rights.  As previously noted, Florida’s expungement statute carves out specific circumstances under which one may not deny the existence of an expunged record.  Missouri’s expungement statute, § 610.140 R.S.Mo., precludes one from denying the existence of an expunged offense “when the disclosure of such information is necessary to complete any application for: (1) A license, certificate, or permit issued by this state to practice such individual’s profession….”  Because the U4 serves as an application for a securities license within the state of Missouri, one could not deny the existence of a prior criminal record.  Each state’s statute is unique.

The Uniform Collateral Consequences of Conviction Act

            At present, those state statutes providing mechanisms for the expungement of non-conviction records are a hodgepodge.  The same is true for mechanisms for the expungement of conviction records.  With respect to the expungement of conviction records, which is also relevant for purposes of the U4 application, the state of the law may be changing.  In 2010, the National Conference of Commissioners on Uniform State Laws approved and recommended for enactment the Uniform Collateral Consequences of Conviction Act.[x]  Because of the growth of the convicted population in the United States, millions of people are released from incarceration, probation and parole supervision every year.  A Department of Justice study estimates that if the 2001 imprisonment rate remains unchanged, 6.6% of Americans born in 2001 will serve prison time during their lives.[xi]  An even greater percentage of Americans will be convicted of crimes but not imprisoned.  And an even greater percentage will be charged with felonies.  This entire population, a high percentage of which is comprised of minorities, is subject to question 14A(1)(b) of the Form U4.  An April 2013 report by the U.S. Government Accountability Office noted that from 2007 to 2011, there have been no substantial changes in the number of minorities and women in management in the financial services industry.  The representation of minorities in senior management level positions is only 11 percent at financial firms.[xii]  According to Maxine Waters, U.S. Representative of California and author of Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), although the lack of inclusion of women and minorities is not limited to the financial services industry, that sector is the worst offender.  One must wonder whether one cause of this is the inclusion of question 14A(1)(b) on the Form U4.  How many minorities never seek employment in the financial services industry because they will be compelled to disclose felony charges, even though they may have been dropped or expunged?

The reality for any U4 applicant is that a state and/or federal fingerprint search is likely to uncover any prior criminal charges.  The day of reckoning will come when the applicant will be required to explain why the “no” box was checked when the perceived correct response was “yes.”  Before checking the “no” box in reliance upon a court ordered expungement, any applicant should consult with legal counsel in order to understand what rights were acquired from the expungement, and the practical consequences of exercising those rights.

Prior Customer Complaints

            Question 14I of the U4 contains a series of queries regarding prior customer complaints and how they were resolved.  FINRA Rule 2080 provides a mechanism for the expungement of customer complaints.  Rule 2080’s predecessor, Rule 2130, is discussed in NASD[xiii] Notice to Members 04-16.  Unfortunately, neither Rule 2080 nor NASD Notice 04-16 contains a definition of “expungement.”  The recipient of an expungement, therefore, will simply have information removed, or expunged, from the CRD system.  The individual is without guidance as to any additional rights that may have been acquired from the expungement.  For instance, if the individual changes jobs within the securities industry and is required to complete a new U4, may the individual deny the existence of the expunged customer complaint?  What if the individual applies for employment outside the securities industry?  Can the individual deny having been the subject of the expunged matter?  Again, availing oneself of the apparent right to say “no” when the answer is actually “yes,” carries risk.


Question 14A(1)(b) on the Form U4 is antiquated.  It serves no legitimate business purpose, especially in view of the fact that an affirmative answer, regardless of the underlying circumstances, will forever appear on an applicant’s public CRD (assuming the applicant ever gets through the hiring process), or BrokerCheck® record.  The public disclosure of a felony charge that was dropped serves only to embarrass.  If indeed such public disclosure served any legitimate business purpose, it would be adopted by the legal community, the public accounting community and the medical community.  Finally, because expungements are neither universally available nor uniformly defined, there will always be confusion in trying to answer questions 14A(1)(b) and 14I of the U4.  Although it makes sense for question 14A(1)(b) to be removed in its entirety from the U4, a reasonable compromise would be for the otherwise useless responsive information to be removed from one’s BrokerCheck® report, and be relegated to the non-public section of Web CRD®.

[i] Questions 14A(2)(b), 14B(1)(b), and 14B(2)(b) also ask about prior charges, but in other contexts.

[ii] All of the information contained within a U4 application is submitted to the Central Registration Depository system, operated by FINRA.  According to FINRA, Web CRD® “contains the registration records of more than 4,015 registered broker-dealers, and the qualification, employment and disclosure histories of more than 642,980 active registered individuals.”  The publicly available BrokerCheck® report is essentially a watered down, or redacted version of the Web CRD® report.  The Web CRD® report is a publicly available document, but is only available from state regulators, such as the Florida Division of Securities.

[iii] Lawyers, certified public accountants and physicians do not wear this very public target.  As an example, The Florida Bar’s website only discloses an attorney’s ten year disciplinary record.  There are numerous attorneys admitted to The Florida Bar with felony records.  They have been admitted (or allowed re-admission) because their backgrounds have been thoroughly vetted by The Florida Bar.  That aspect of their background, unlike in the securities industry, is not placed on public display on the Bar’s website, or anywhere else.  The Florida Bar does not have a BrokerCheck® equivalent.

[iv] Query whether a Nebraska Bar applicant, who has obtained a lawful expungement in a state whose statutes explicitly provide that the receipt of an expungement is absolute, can argue that disclosure to the Nebraska Bar is not required?  Can the Nebraska Bar applicant rightfully treat the expunged charge as a nullity?  Or has the applicant just added a year or two to the licensing process?

[v] On March 5, 2015, FINRA released Form U4 and U5 Interpretive Questions and Answers.  FINRA was asked whether one is required to report a conviction which was ultimately pardoned.  From FINRA’s perspective, FINRA is the sole arbiter of whether an item is reportable.  Any court order granting a pardon is required to be sent to FINRA’s Registration and Disclosure Department for review.  FINRA employees within that department then determine whether the item must be disclosed on the Form U4.  Because this interpretation requires one to disclose a prior felony conviction or charge to both FINRA and a prospective employer, it is inconsistent with the legislative intent of those states that have enacted laws recognizing the right to both privacy, and a fresh start, where a judge has explicitly ruled that the prior charge or conviction may forever be considered a nullity—as if it had never occurred. See, e.g., NY CLS CPL § 160.60 and Fla. Stat. § 943.0585.

[vi] It should separately be noted that regardless of the statutory “erasure,” Mr. Galligan answered the U4, question 22, correctly.  He was only charged with a misdemeanor, and the charge did not involve the investment related business, fraud, false statements or omissions, wrongful taking of property, or bribery, forgery, counterfeiting or extortion.

[vii] Typically, an individual would sign a single U4 application.  That application is then sent to each state in which the applicant wishes to be registered.

[viii] In the event the employee is later terminated after refusing to disclose information about the criminal charges, the employer may be subjected to criminal charges.  Md. Criminal Procedure Code Ann. § 10-109(b)(1).

[ix] Idaho, Montana, North Dakota and Wisconsin do not have statutory provisions for expungements of non-convictions.

[x] The Uniform Collateral Consequences of Conviction Act was first put into law in Vermont.  The Act was signed into law on June 10, 2014.  Uniform Collateral Consequences of Conviction Act (Added 2013, No. 181 (Adj. Sess.), § 1, eff. Jan. 1, 2016).  With respect to expungements of non-convictions, §§ 7603 and 7606 apply.  Section 7606, signed into law in 2012, provides, “In any application for employment, license, or civil right or privilege or in an appearance as a witness in any proceeding or hearing, a person may be required to answer questions about a previous criminal history record only with respect to arrests or convictions that have not been expunged.”

[xi] Thomas P. Bonczar, Prevalence of Imprisonment in the U.S. Population, 1974 – 2001, at 1, Bureau of Justice Statistics Special Report (Aug. 2003, NCJ 197976), as cited in Prefatory Note to Uniform Collateral Consequences of Conviction Act.

[xii] Doreen Lilienfeld and Amy Gitilitz Bennett, Will Dodd-Frank’s Diversity Mandates Go Far Enough? Law 360, cited in U.S. Magistrate Karen Wells Roby, Diversity and Inclusion: The Financial Services Sector and Dodd Frank, ABA Section of Litigation, 2015,

[xiii] National Association of Securities Dealers, now known as FINRA, or Financial Industry Regulatory Authority.


The Ten Hour Expungement

What on earth is a ten hour expungement? It is the approximate number of hours it should take a competent attorney to expunge an auction rate complaint from a registered representative’s CRD. Contrary to popular belief, the CRD is not engraved in stone. Rather, the CRD is intended to be a document that accurately reflects a registered representative’s relevant personal history. It is not intended to be a wall upon which all mud sticks.

So why focus on auction rate complaints? Beginning in March 2008, the CRD system was flooded with U-4 and U-5 amendments reflecting customer complaints related to frozen auction rate positions. While the reporting of many of these customer complaints was appropriate, often it was not. In those instances where reporting may have been inappropriate, the complaining customer was generally happy with his or her registered representative(or “associated person”, as referred to in FINRA lingo), but unhappy with the registered representative’s firm, or the auction rate market in particular. Indeed, the customer whose complaint lead to a reportable event may still be doing business with the registered representative whose CRD reflects the same customer’s complaint. In those cases, it is more likely than not that the customer would agree that his or her complaint based on events from years ago was not about the registered representative, but rather, about the registered representative’s firm, the product, or some other event.

Where the complaining customer is still doing business with the selling registered representative, the likelihood of obtaining an expungement is significantly increased. Moreover, the value of a clean CRD cannot be overstated. Pursuant to FINRA Rule 2080, FINRA will expunge a CRD if:

(A) the claim, allegation or information is factually impossible or clearly erroneous;
(B) the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
(C) the claim, allegation or information is false.

Demonstrating one of these factors is not especially challenging with the customer’s cooperation. If a customer is willing to sign an affidavit stating that the reportable event is “clearly erroneous”, or that the registered representative “was not involved in the alleged investment related sales practice violation”, obtaining a court order to this effect is realistic. All one needs to do is (1) obtain a customer affidavit; (2) file a complaint in court, naming FINRA as a party; and (3) schedule a hearing to have an Order directing an expungement entered into the public record. If the registered representative’s position regarding expungement is reasonable, and the customer’s affidavit is not contrived, there is a strong likelihood that FINRA will not contest the expungement. Once the Order directing the expungement is entered, the Order is forwarded to FINRA in order to effectuate the expungement. While this is not the only route leading to an expungement, it is the opinion of this lawyer that it is an efficient route.

FINRA’s website contains examples of expungement orders that FINRA finds acceptable for each of the three criteria provided above. Those orders can be found at:
Assuming that the court Order contains the “magical” language that FINRA requires, expungements are clearly within reach.

So Why Bother to Spend Time and Money on Expungements?

There are several reasons one would want to clean up a CRD. First, not only is the CRD a matter of public record through FINRA’s broker check system, a more complete version of the CRD is a matter of public record through various state regulators. The more complete version of the CRD contains the names of complaining customers, whereas the broker check version does not. There are other differences as well. However, because the CRD is a matter of public record, the presence of a complaint on a CRD is information that is available to both current and prospective clients. That information may prove embarrassing, or even threaten an existing or prospective client relationship.

Second, the presence of customer complaints on a CRD may threaten a registered representative’s relationships with referral sources. Those referral sources, such as lawyers and CPA’s, may be reluctant to refer to registered representatives with complaints on their CRD.

Third, the presence of customer complaints on a CRD may impact a registered representative’s ability to find new employment. Prospective employers may have policies limiting new hires to those with clean CRD’s. Prospective employers may also be less inclined to offer transitional compensation (forgivable loans) to registered representatives with complaints. Alternatively, the loan amount may be less generous.

Finally, customer complaints may impact one’s ability to transfer state licenses. Various states routinely ask for additional information before approving the transfer of licenses from one firm to another. It is the registered representative’s responsibility to do everything within their power to maintain their ability to change firms, and in turn, transfer registrations.


Any registered representative interested in an expungement should not delay pursuing it. It is conceivable that FINRA’s rules could change at any time, thereby limiting the availability of expungements. Additionally, if a customer’s cooperation is needed for the expungement, it is better to seek that cooperation while the relationship with that customer is healthy.

Concentration Risk is Real

According to FINRA, the Financial Industry Regulatory Authority, “Concentration risk is real. The sooner you give your portfolio a concentration checkup the better.” We are presently seeing portfolios constructed or managed by Raymond James and UBS Financial Services, concentrated in the precious metals sector or commodities sectors. Examples of the securities seen in these concentrated accounts include European Goldfields, LTD, Gold Resource Corp., Goldcorp Inc., Golden Queen Mining, Ltd., New Gold Inc., Silver Wheaton Corp., Yamana Gold Inc., Market Vectors Gold Miners ETF, Franklin Gold and Precious Metals, Van Eck International Gold Fund and Eldorado Gold. Investors, certified public accountants and estate planning attorneys should be especially concerned when seeing clients with concentrated positions in the precious metals sector or commodities sector, especially when any of these securities are part of the portfolio. Not only should your clients consider having a Certified Financial Planner review the portfolio, they should also consider having an experienced securities arbitration attorney review the portfolio.

David A. Weintraub, P.A. is interested in speaking with Raymond James and UBS clients with concentrated positions in the precious metals sector.

European Goldfields, now known as Eldorado Gold

In its Annual Information Form dated March 31, 2011, European Goldfields stated with regard to Market Price Volatility, “The trading price of the Common Shares has been and may continue to be subject to large fluctuations….Ownership of the Common Shares is currently concentrated and sales of substantial amounts of Common Shares in the public market by the Company’s shareholders, or the perception that such sales might occur, could result in a material adverse effect on the market price of the Common shares….[t]he effect of these and other factors on the market price of the Common Shares on the exchanges in which the Company trades has historically made the Company’s share price volatile and suggests that the Company’s share price will continue to be volatile in the future.” Investors, certified public accountants and estate planning attorneys should be especially concerned when seeing this stock in an investment portfolio managed by Raymond James or UBS Financial Services if the portfolio was not supposed to be invested in high risk securities. Not only should your clients consider having a Certified Financial Planner review the portfolio, they should also consider having an experienced securities arbitration attorney review the portfolio.

David A. Weintraub, P.A. is interested in speaking with European Goldfields and Eldorado Gold investors who believe that their investments were supposed to be conservatively managed.

New Gold Inc.

In its Annual Information Form dated March 31, 2011, New Gold stated with regard to Risk Factors, “The operations of the Company are speculative due to the high-risk nature of its business, which is the acquisition, financing, exploration, development and operation of mining properties. These risk factors could materially affect the Company’s future operating results….The Company’s earnings and cash flows are subject to price risk due to fluctuations in the market price of gold, silver and copper. World gold prices have historically fluctuated widely. World gold prices are affected by numerous factors beyond the Company’s control….” Investors, certified public accountants and estate planning attorneys should be especially concerned when seeing this stock in an investment portfolio managed by Raymond James or UBS Financial Services if the portfolio was not supposed to be invested in high risk securities. Not only should your clients consider having a Certified Financial Planner review the portfolio, they should also consider having an experienced securities arbitration attorney review the portfolio. David A. Weintraub, P.A. is interested in speaking with New Gold investors who believe that their investments were supposed to be conservatively managed.

Golden Queen Mining, Ltd.

In its 10Q report for the first quarter of 2011, Golden Queen stated, “[t]he Company has had no revenues from operations since inception and as at March 31, 2011 has a deficit of $64,172,865 accumulated during the exploration stage. Management plans to control current costs and does not anticipate requiring additional financing to fund Company activities over the next twelve months. In addition, management plans to secure equity and/or debt or joint venture financing to fund construction of the operating facility at the Soledad property (“Soledad”) once a feasibility study has been concluded and a production decision has been made. The ability of the Company to obtain financing for its ongoing activities and thus maintain solvency, or to fund construction of the operating facility at Soledad, is dependent on equity market conditions, the market for precious metals, the willingness of other parties to lend the Company money or the ability to find a joint venture partner. While the Company has been successful at certain of these efforts in the past, there can be no assurance that future efforts will be successful. This raises substantial doubt about the Company’s ability to continue as a going concern.” Investors, certified public accountants and estate planning attorneys should be especially concerned when seeing this stock in an investment portfolio managed by Raymond James or UBS Financial Services if the portfolio was not supposed to be invested in high risk securities. Not only should your clients consider having a Certified Financial Planner review the portfolio, they should also consider having an experienced securities arbitration attorney review the portfolio. David A. Weintraub, P.A. is interested in speaking with Golden Queen Mining investors who believe that their investments were supposed to be conservatively managed.

New Rules End FINRA “Whac-A-Mole” Strategy

Running a legal department at a financial services company has been a lot like the popular game Whac-A-Mole- as soon as one of those pesky complaint letters rears its head, whack it as hard as possible, perhaps with a small amount of money, and make sure the mole never appears again. However, an important part of that strategy now may be forced out of the financial services playbook.

If a financial services company happens to be a member of the Financial Industry Regulatory Authority, or FINRA, it simply has been able to insert a confidentiality clause in a settlement agreement with a wronged client. The confidentiality clause is designed to buy peace and quiet, keeping the client silenced. The traditional confidentiality agreement even enjoys FINRA’s blessing.

Read Full Article (PDF)

Direct Link to Article on Daily Business Review