FINRA Suspends Broker for Unapproved Customer Loans
Commentary by Steven Lofchie
FINRA suspended a broker for borrowing money from a customer without notifying his firm or obtaining the required written approval.
According to the AWC, the broker borrowed a total of $750,000 from a customer with whom he had maintained a 25-year friendship. The broker initially borrowed $250,000 after his home was damaged by Hurricane Harvey and subsequently borrowed an additional $500,000 several years later. FINRA found that neither loan was documented, and the broker has not repaid any portion of either loan.
FINRA found that at the time of the loans, the firm’s written procedures prohibited registered persons from borrowing from customers without prior written approval. Notwithstanding this policy, the broker failed to notify the firm or seek approval for the arrangements. When the firm discovered the loans, it suspended the broker for one month and required the forfeiture of two months' commissions.
FINRA determined that the broker violated FINRA Rules 3240 ("Prohibition on Borrowing From or Lending to Customers") and 2010 ("Standards of Commercial Honor and Principles of Trade").
The broker consented to (i) a two-month suspension from associating with any FINRA member in all capacities and (ii) a $5,000 fine.
Commentary
In many cases, the penalties imposed on individual brokers who violate their customer obligations seem quite light, relative to the actual or potential harm. Perhaps this individual broker is a wonderful guy and really intended to repay the undocumented borrowing. But the fact that he also has a disciplinary history for suitability violations seems a relevant problematic fact.