According to FINRA, Ian E. James was fined $10,000 and suspended from association with any FINRA member in all capacities for two months for failing to timely amend his Form U4 to disclose a federal tax lien totaling $59,997.08 and for engaging in undisclosed outside business activity related to a medical marijuana company.
James became aware that the IRS had filed a federal tax lien against him but failed to promptly disclose it on his Form U4 as required. Making matters worse, he subsequently inaccurately stated on his firm's annual compliance questionnaire that he had made all necessary amendments to his Form U4, even though he had not disclosed the tax lien. This false attestation on the compliance questionnaire showed dishonesty beyond the initial failure to disclose.
James only belatedly disclosed the lien on his Form U4 after FINRA inquired about it with his firm, suggesting he would have continued concealing it had FINRA not discovered it through other means.
Beyond the disclosure failure, James engaged in an outside business activity related to a medical marijuana company without providing written notice to his firm. Through an entity he owned, James made a capital contribution to the medical marijuana company in the form of a promissory note in exchange for partial ownership interest. He also formed and became the managing member of a new LLC to engage in operational activity for the medical marijuana company.
James expected to serve as the company's chief financial officer and expected to obtain compensation both in that capacity and in connection with his ownership interest in the company. This was not a passive investment but rather an active business role that required disclosure to his firm.
The business relationship ultimately soured. James, through the entity he owned, filed a lawsuit alleging that the medical marijuana company and its founder breached agreements he had executed, preventing him from obtaining the future profits he had anticipated. James received a monetary settlement in connection with the lawsuit.
The involvement with a medical marijuana company raises additional concerns beyond typical outside business activities. While marijuana businesses are legal in some states, they remain illegal under federal law, creating compliance and regulatory risks. Financial institutions, including FINRA member firms, face challenges in servicing marijuana-related businesses due to federal banking restrictions and anti-money laundering concerns. James's firm should have been informed of his involvement so it could assess these risks and determine whether the activity was appropriate.
The combination of failing to disclose a substantial tax lien, lying on compliance questionnaires about making required amendments, and engaging in undisclosed outside business activity involving a marijuana company warranted the $10,000 fine and two-month suspension.
