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FINRA Fines And Suspends Broker For Improper Customer Loans
Written: August 1, 2012

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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, Stephen Paul Tommelleo submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Stephen Paul Tommelleo, Respondent (AWC 2010025098401, July 25, 2012).

Tommelleo entered the securities industry in November 1986, when he was employed by FINRA member firm PFS Investments, Inc. (“PFS”), where he was registered as an Investment Company And Variable Contracts Products Representative/Principal until November 2010.  The AWC asserts that Tommelleo had no prior relevant disciplinary history.

Borrowing

The AWC alleges that in August 2008, Tommelleo began to periodically borrow money from Customer1, to whom the stockbroker occasionally made partial repayments. In 2009, Tommelleo signed a $14,885 promissory note, the full amount he owed. In May 2010, Tommelleo repaid Customer1 $800; thereafter, in August 2010, Customer1 complained to PFS about the unpaid balance due on the 2009 promissory note. In November 2010,  PFS settled with Customer1 for $2,000. Subsequently,  Customer1 sued Tommelleo in state court for $15,000.

In March 2010, Customer2 loaned $2,000 to Tommelleo subject to the understanding that the stockbroker would full repayment by April 1, 2010.  Although the AWC asserts that Tommelleo fully repaid Customer2, such is noted as having occurred in “late 2010.”

In April 2010, 85-year-old Customer3 loaned Tommelleo $3,000, which sum he withdrew from his PFS account. Repayment of this loan did not seem to have been timely forthcoming because the AWC alleges that in  October 2010 PFS settled with Customer3 for $3,000.

Finally, on January 20, 2010, Customer4 loaned Tommelleo $12,000, which he withdrew from his PFS account. On May 15, 2010, Customer4 loaned Tommelleo an additional $2,800, and also paid a money order transfer fee of $190, for a total loan of $14,990. The AWC alleges that Customer4 has not been repaid.

During that relevant period, PFS’s written supervisory procedures did not permit loans between registered representatives and their customers. Further, for 2008 and 2009, Tommelleo completed PFS’s annual compliance attestations indicating that he had not and would not borrow money from any firm customer.

Sanctions

As a result of the loans from the four cited customers, the AWC deemed Tommelleo’s conduct cited above to constitute violations of NASD Rules 2370: Borrowing From or Lending to Customers and 2110 and FINRA Rule 2010.  In accordance with the terms of the AWC, FINRA imposed upon Tommelleo a $5,000 fine; $14,990 restitution plus interest to customer Cusomter4,  and a 3 month suspension  from association with any FINRA member firm in all capacities.

Bill Singer's Comment

Street Sweeper” has extensively covered this topic but despite all those admonitions, registered representatives persist in ignoring the rules.  The excuses for such noncompliance? Well, sure, we’ve covered them amply too: a souring economy, the loss of commission business, and the closing of firms and branches.

Whether employed at Merrill LynchMorgan Stanley, JP Morgan, Wells Fargo, UBS, or smaller firms, the need for cash pushes many brokers to the limit and prompts arrangements with customers to borrow money that are in violation of FINRA and member firm rules. Quite often, the member firms would have permitted the loans subject to the registered person’s compliance with the in-house notification rules.  On the other hand, where a member firm takes a strict line against such loans, brokers are simply risking thousands in regulatory fines and typically months in suspension when engaging in such transactions in violation of FINRA and firm rules.

READ these recent borrowing cases analyzed in “Street Sweeper”:

FINRA Trifecta Earns Stockbroker Fine And Suspension For Borrowing, U4, Private Securities Transactions

Classic FINRA Case Of A Stockbroker Borrowing From A Client

Commonwealth Stockbroker’s Private Securities Transaction and Customer Loan Prove Boiling Frog Story

Borrowing From Customer Costs Stockbroker His Career

Neither a Borrower Nor a Forger Be, FINRA Tells Barred Broker


 
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