Broker Settles FINRA Charges for Improper Customer Loans

A broker settled FINRA charges for borrowing over $2 million from customers without firm approval or required documentation.

According to the AWC, the broker borrowed money from customers "through loans that were not documented or secured by [] collateral." FINRA highlighted one instance in which the broker borrowed "at least $2,171,000" from a customer through a series of loans. FINRA found that this customer borrowed on margin from his account, then transferred the funds to a personal bank account before lending them to the broker. FINRA determined that the customer incurred "substantial margin debt" as a result. FINRA also found that at the time of the loan, the broker lacked a reasonable ability to pay back the loan. FINRA said that, to date, the broker has not repaid any portion of the loan. 

FINRA found that the broker borrowed the money without providing prior notice to, or obtaining written approval from his FINRA member firm. FINRA said that the firm's written supervisory procedures did not permit registered representatives to borrow money from customers unless certain conditions were met. FINRA stated that these conditions included: (i) the customer being "an immediate family member;" (ii) the customer being a financial institution, with the loan terms "available to the general public;” and (iii) the loan being tied to a separate business relationship outside of the advisor-client connection, provided the representative "notified the firm" and obtained "written approval" before proceeding. 

FINRA determined that the broker violated FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade") and 3240 ("Prohibition on Borrowing From or Lending to Customers"). 

To settle the charges, the broker agreed to a bar from associating with any FINRA member in all capacities.