by Bill Singer
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority (“FINRA”), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Gregory M. Viechnicki submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Gregory M. Viechnicki, Respondent (AWC 2011026685501, July 13, 2012).
In March 1999, Viechnicki entered the industry in a registered capacity and during the relevant time of 2009 through October 6, 2010, was a General Securities Representative with FINRA member firm BrokersXpress LLC. The AWC asserts that Viechnicki had no prior FINRA disciplinary history.
Bill Singer
On about April 6, 2010, Viechnicki borrowed $10,000 from a customer and, subsequently, fully repaid the loan with interest in installment payments on May 2010 and October 2010.
Unfortunately, when he borrowed the funds, BrokersXpress’s procedures generally prohibited representatives from borrowing money from a customer, subject to the option to seek an exception pursuant to a prior request for the firm’s written approval. Viechnicki did not seek or obtain such prior approval and did not disclose that he had borrowed money from the firm’s customers.
For the reasons cited above, the FINRA alleged that Viechnicki borrowed money from a customer in contravention of his firm’s written policies and without prior disclosure in violation of NASD Conduct Rule 2370: Borrowing From or Lending to Customers and FINRA Rule 2010: Standards of Commercial Honor and Principles of Trade. In accordance with the terms of the AWC, FINRA imposed upon Viechnicki a $2,500 fine and a 10-business-day suspension from association with any FINRA member in any capacity.
Bill Singer‘s Comment
Rarely do we get such a short, sweet, and simple case as this — and it offers us a unique opportunity to answer one of the most basic questions: What’s the going rate from FINRA for a Borrowing violation where there’s only one loan, it’s fully repaid, and the broker has no prior history? The answer — at least according to this case — is a $2,500 fine and 10-business-day suspension. Of course, rarely are these case so straightforward and often involve additional violations or complicating facts; however, for one brief, shining moment, we have the distillate in its purest form.
This issue has hit Wall Street hard since the onset of the Great Recession, and has not discriminated among large or small firms. Amidst a souring economy, the loss of commission business, and the closing of firms and branches, whether employed atMerrill Lynch, Morgan Stanley, JP Morgan, Wells Fargo, UBS, or smaller firms, the need for cash pushed many brokers to the limit and prompted arrangements with customers to borrow money. The legacy of those ongoing hard times will likely keep this violation on the front burner at FINRA for years to come.
Given how brief this column is, let’s take advantage of the opportunity to present in full text, the current FINRA Borrowing Rule:
FINRA Rule 3240: Borrowing From or Lending to Customers
(a) Permissible Lending Arrangements; Conditions
No person associated with a member in any registered capacity may borrow money from or lend money to any customer of such person unless:
(1) the member has written procedures allowing the borrowing and lending of money between such registered persons and customers of the member;
(2) the borrowing or lending arrangement meets one of the following conditions:
(A) the customer is a member of such person’s immediate family;
(B) the customer (i) is a financial institution regularly engaged in the business of providing credit, financing, or loans, or other entity or person that regularly arranges or extends credit in the ordinary course of business and (ii) is acting in the course of such business;
(C) the customer and the registered person are both registered persons of the same member;
(D) the lending arrangement is based on a personal relationship with the customer, such that the loan would not have been solicited, offered, or given had the customer and the registered person not maintained a relationship outside of the broker-customer relationship; or
(E) the lending arrangement is based on a business relationship outside of the broker-customer relationship; and
(3) the requirements of paragraph (b) of this Rule are satisfied.
(b) Notification and Approval
(1) The registered person shall notify the member of the borrowing or lending arrangements described in paragraphs (a)(2)(C), (D), and (E) above prior to entering into such arrangements and the member shall pre-approve in writing such arrangements. The registered person shall also notify the member and the member shall pre-approve in writing any modifications to such arrangements, including any extension of the duration of such arrangements.
(2) With respect to the borrowing or lending arrangements described in paragraph (a)(2)(A) above, a member’s written procedures may indicate that registered persons are not required to notify the member or receive member approval either prior to or subsequent to entering into such borrowing or lending arrangements.
(3) With respect to the borrowing or lending arrangements described in paragraph (a)(2)(B) above, a member’s written procedures may indicate that registered persons are not required to notify the member or receive member approval either prior to or subsequent to entering into such borrowing or lending arrangements, provided that, the loan has been made on commercial terms that the customer generally makes available to members of the general public similarly situated as to need, purpose and creditworthiness. For purposes of this subparagraph, the member may rely on the registered person’s representation that the terms of the loan meet the above-described standards.
(c) Definition of Immediate Family
The term “immediate family” means parents, grandparents, mother-in-law or father-in-law, husband or wife, brother or sister, brother-in-law or sister-in-law, son-in law or daughter-in-law, children, grandchildren, cousin, aunt or uncle, or niece or nephew, and any other person whom the registered person supports, directly or indirectly, to a material extent.
Supplementary Material
.01 Record Retention. For purposes of paragraph (b)(1) of this Rule, members shall preserve the written pre-approval for at least three years after the date that the borrowing or lending arrangement has terminated or for at least three years after the registered person’s association with the member has terminated.