FINRA Suspends Representative for Prohibited Customer Loans

FINRA suspended an Investment Company and Variable Contracts Products Representative for borrowing money from two senior customers without firm approval.

According to the AWC, the representative borrowed a total of $173,000 from two senior retail investors to fund a personal investment — $128,000 from one customer and $45,000 from the other. Although the representative had a personal friendship with both customers, the loans were undocumented and did not include interest payments. The representative repaid the loans in full. FINRA said the firm discharged the representative.  

FINRA said the firm’s written supervisory procedures prohibited associated persons from borrowing from customers unless the customer was an immediate family member or a financial institution pursuant to FINRA Rule 3240 ("Prohibition on Borrowing From or Lending to Customers"). FINRA also stated that the representative did not meet any of the five conditions specified to allow for the arrangement contained in the rule. FINRA stated that neither customer was a family member and the representative failed to give prior notice to, or obtain approval from, the firm.

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

The representative consented to (i) a three-month suspension from associating with any FINRA member in all capacities, and (ii) a $5,000 fine.