by Bill Singer
The closer you look at this loan the more questions arise
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, Jeffrey Jon Rummells submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Jeffrey Jon Rummells, Respondent (AWC 201002510-5701, October 12, 2012).
Rummells first became registered as a general securities representative in 1986 with Edward Jones, where he remained until his November 2010 discharge. The AWC asserts that Rummells had no prior relevant disciplinary history with the Securities and Exchange Commission, FINRA, any other self-regulatory organization or any state securities regulator.
Arranged Loans
Bill Singer
The AWC alleges that on six separate occasions between September 2009 and November 2010, Rummells arranged for one of his customers to lend a total of $625,234 to a holding company.
Consider This
Okay, fair enough; however, lets add a few more details.
So, now that you’ve considered the four points above, how do you feel about the loans and what should be done by FINRA to Rummells?
One More Fact
Okay, just one more bit of information: Rummells fully repaid his aunt.
Ahhh . . . you didn’t see that last fact comin’, did ya?
Okay, so, there you have it. No peeking below. What, if anything, should FINRA do to Rummells?
Sanctions
In accordance with the terms of the AWC, FINRA alleged that Rummels had violated NASD Rule 2370 and FINRA Rules 3240 and 2010, and the self-regulatory organization imposed upon Rummells a $15,000 fine and a 14-month suspension from association with any FINRA member in any capacity.
SIDE BAR: Full-text of current FINRA Borrowing Rule:
Since the onset of the Great Recession, registered persons have been financially hit along with the rest of the population, and financial pressures have 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 at Merrill 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.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.
See these “Street Sweeper” borrowing columns:
- FINRA Bars Broker For Loans From Elderly Widows And Family
- FINRA Charges That Real Estate Loan Was Improper Borrowing By Stockbroker
- FINRA Fines And Suspends Broker For Improper Customer Loans
- 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