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Notice I-07-48

December 20, 2007

Failure to Disclose Material Information on Registration Applications

Members of the Commodity Futures Trading Commission ("CFTC") staff and NFA staff meet quarterly as the Registration Working Group to discuss registration-related issues. This Notice is based upon the CFTC's view of relevant case law.

The information in Part I of the Notice is intended to assist Sponsors and their employees in properly completing the registration application and avoiding the potentially severe consequences of failing to disclose material information on the application. Although this Notice focuses primarily on the failure to disclose disciplinary information, it applies to all information requested by the registration application. The information in Part II describes one type of rehabilitation evidence the CFTC expects to see in certain cases involving alcohol or drugs.

PART I - WILLFUL FAILURE TO DISCLOSE MATERIAL INFORMATION

Intentional v. Willful Failure to Disclose

It is not necessary that the applicant or registrant intentionally fails to disclose the information to be disqualified from registration under Commodity Exchange Act. A willful failure to disclose material information is enough to disqualify the applicant or registrant. Practically speaking, a person who knows about the information that is required to be disclosed but fails to disclose that information has willfully failed to disclose material information, absent credible evidence that shows otherwise.

Read the Instructions and Questions Carefully

To avoid being disqualified from registration, it is critical to carefully read the instructions and the questions on the application. A question that is answered incorrectly because it was misunderstood or misread can result in severe consequences, including denial or revocation of registration.

Rely Only on Advice from NFA Staff

If a question in the Disciplinary Information Section requires disclosure of a matter, a "Yes" answer to the question is required no matter what other advice has been received from a lawyer, employer, judge or anyone other than a member of NFA's Registration, Compliance, Legal or Information Center ("RCLI") departments. If there is any question about whether particular information must be provided, whether a particular matter must be disclosed or whether a particular question requires a "Yes" answer, call NFA's Information Center at (312) 781-1410. Representatives are available from 8:00 a.m. to 5:00 p.m., Central Time, Monday through Friday.

If the advice of NFA's RCLI staff is sought, a written record containing the date of the conversation, the name of the NFA staff person giving the advice and a description of the advice should be made during the conversation and kept in the event an issue concerning disclosure of the matter arises later.

Compliance with Disclosure Requirements of Other Regulatory Bodies is not Sufficient

If a question in the Disciplinary Information Section requires disclosure of a matter, a "Yes" answer to the question is required even if:

  • the matter has been disclosed to another regulatory body or self-regulatory organization such as FINRA, a futures exchange or a securities exchange; or

  • another regulatory body or self-regulatory authority does not require disclosure of the same matter.

Disclose Criminal Cases Resulting in Expungements and Diversion Programs

The CFTC requires a "Yes" answer to the Criminal Information questions even if:

  • the matter has been expunged or the records sealed;

  • there was no adjudication or finding of guilt;

  • the guilty plea was vacated or set aside; or

  • the matter was dismissed upon completion of the diversion program.

These matters require disclosure no matter what the applicant's or registrant's employer, lawyer or the judge may have advised.

Update the Information on the Application

The failure to promptly update information can similarly result in denial or revocation of registration. If any information provided on the application changes or a matter that requires disclosure on the application occurs after the application is filed or registration is granted, the new information must be promptly disclosed to NFA. APs and Principals should advise their Sponsors of the new information, and the Sponsor must file the update of their behalf.

PART II - REHABILITATION EVIDENCE IN REGISTRATION CASES INVOLVING ALCOHOL AND DRUGS

If NFA initiates a registration case, once NFA proves that a statutory disqualification exists, the applicant or registrant is presumed to be unfit for registration. To overcome this presumption, the applicant or registrant must submit mitigation or rehabilitation evidence that establishes that the person's registration would not present a substantial risk to the public.

In cases involving drugs or alcohol where there are repeat offenses or where there has been loss or endangerment of life, the respondent should provide rehabilitation evidence consisting of corroborated evidence that establishes either that the individual has successfully been treated for drug and/or alcohol abuse or that the respondent did not need treatment because he or she was not abusing either drugs or alcohol. The failure to provide such evidence may result in a determination that whatever other mitigation or rehabilitation evidence the respondent has presented is not sufficient to overcome the presumption of unfitness.

If you have any questions regarding this Notice or registration requirements generally, please contact Michael J. Crowley, Associate General Counsel, at (312) 781-1388 or mcrowley@nfa.futures.org.

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