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Stockbroker's Borrowing From Elderly Client Gets Him Barred
Written: November 28, 2012

A picture taken on February 8, 2011 in Rennes,...

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 Brian O. Putt submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of Brian O. Putt, Respondent (AWC 2012031260201, November 26, 2012).

In 1997, Putt entered the securities industry as a General Securities Representative and in 2005, he registered with. UBS Financial Services, Inc., where he remained until his termination on January 11, 2012.

The AWC alleged that between October 15, 2009 and December 7, 2010, on three occasions, Putt borrowed a total of $58,000 from an eighty-nine year-old customer pursuant to promissory notes that the broker executed on the client’s behalf.  It was further alleged that on two separate occasions in May 2010 and in January 2011, Putt represented in writing to the customer that he had repaid to the client some $55,900 via deposits into her account — in fact, the AWC alleged that no such repayments were made. Finally, the AWC alleged that Putt represented on UBS annual compliance questionnaires that he understood that loans with customers were prohibited. Putt never disclosed the loans to UBS.

That customer died in November 2011. According to online FINRA documents, UBS terminated Putt on January 11, 2012 for this reason:

MR. PUTT’S EMPLOYMENT WAS TERMINATED AFTER THE FIRM LEARNED THAT HE HAD BORROWED MONEY FROM A CLIENT WITHOUT THE FIRM’S APPROVAL

As a result of the foregoing conduct, the AWC alleged that Respondent Putt violated NASD Conduct Rule 2370 (effective prior to June 14, 2010), FINRA Rule 3240(a) (effective from June 14,2010), and FINRA Rule 2010.

In accordance with the terms of the AWC, FINRA imposed upon Putt a Bar from association with any FINRA member in all capacities.

Bill Singer‘s Comment

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 LynchMorgan Stanley, JP Morgan, Wells FargoUBS, 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.

READ the full-text of 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.

See these “Street Sweeper” borrowing columns:



 
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