by Bill Singer, Esq.

Under Section 3(a)(39)(F) of the Securities Act of 1934 and NASD By-Laws Article III: Qualifications of Members and Associated Persons, Section 4: Definition of Disqualification (g)(1),  a person is subject to a disqualification with respect to membership or participation in, or association with a member of, a self-regulatory organization, if such person has been convicted of any felony within ten years of the date of the filing of a self-regulatory organization membership/association application.The NASD/SEC provisions also detail additional acts and circumstances of a criminal and non-criminal nature that serve as the bases for disqualification.In securities industry jargon, individuals who fall within the ambit of the proscribed conduct are commonly referred to as statutorily disqualified or an SD. 

Are there any events that typically result in an individual being deemed an SD?

The best way to answer this question would be to consult Article III, Section 4 of the NASD's By-Laws; and Section 3(a)(39) and 15(b)(4) of the Securities Exchange Act of 1934.  Typically, you will find that the misdemeanors denominated in Form U-4 Item 23(B)(1)(a) [for details see Part I] and all felonies from the date of conviction plus ten years are covered under the definition.  Other qualifying acts may include court-issued injunctions pertaining to investment-related activities and bars/suspensions/revocations imposed by various regulatory organizations.  Similarly, a determination that you made a intentional false statement on any required application or report, or during testimony in certain proceedings will also result in your being deemed an SD.  

From what point in time is the ten-year horizon measured for felonies?

The ten years start at the point in time that you “file” for association with a self-regulatory organization.  The “look-back” from the date of filing is towards the date of conviction - - - not arrest, not sentencing, and not the date of discharge from incarceration.

Is the ten-year horizon applicable to the "yes" answer on the Form U-4?

This is a frequent source of confusion. To try to put it in a nutshell, if you have been convicted of a felony, you always have a “yes” answer on the FORM U-4. You are deemed an SD for a ten-year period as measured from the date of your application for association with an industry member firm to the date of your felony conviction. 

BE CAREFUL:  A common misconception is that all SD acts are subject to a ten-year horizon; however, a careful reading of the NASD/SEC provisions discloses that the ten-year limitation is only provided for felonies and misdemeanors.  There is no such limit for injunctions, administrative bars, suspensions, or revocations, nor concerning intentional misstatements.