According to FINRA, VSI Securities, Inc. was censured and fined $20,000 for willfully violating Section 17(a)(1) of the Securities Exchange Act of 1934 and Exchange Act Rule 17a-14 by failing to disclose its disciplinary history in its customer relationship summary (Form CRS).

Form CRS is a standardized disclosure document that broker-dealers and investment advisers must provide to retail investors. The form is designed to help investors understand the key differences between brokerage and advisory services, the fees they will pay, conflicts of interest, and the legal standard of conduct they can expect. One of the required items on Form CRS is disclosure of the firm's legal and disciplinary history.

When VSI Securities filed its initial Form CRS, the firm failed to respond "Yes" to the question concerning legal and disciplinary history, even though the firm had prior reportable legal or disciplinary history that should have been disclosed. This omission deprived investors of material information they are entitled to receive when deciding whether to open or maintain accounts with the firm.

In addition to the disciplinary history disclosure failure, VSI Securities omitted the required heading and conversation starters for Item 4 of the Form CRS. Form CRS uses a question-and-answer format with specific required headings and "conversation starters"—sample questions that investors can ask their financial professionals. These standardized elements are designed to facilitate meaningful conversations between investors and financial professionals about important topics like conflicts of interest and disciplinary history.

The violation was classified as willful, meaning the firm knew or should have known about the requirement and its failure to comply. In securities law, a willful violation does not require proof of intent to violate the law—rather, it means the firm intentionally committed the act that constituted the violation.

Form CRS became required in June 2020 as part of the SEC's Regulation Best Interest package of reforms. The form aims to make it easier for retail investors to compare services and make informed choices about their financial relationships. For the form to serve its intended purpose, firms must provide complete and accurate information.

Investors should review Form CRS documents carefully and ask questions about any disciplinary history or conflicts of interest disclosed. These disclosures can provide important insights into a firm's track record and business practices.