A winery is a risky business. One year, you have great weather and the hottest label; but the next year, too much rain yields a lousy vintage. Then the next year, you got drought and hardly enough wine to break even. This is not the business for the faint hearted. As if being a stockbroker isn't a fickle enough line of work, today's BrokeAndBroker Blog follows the exploits of a registered person who decided to also run a winery. How does this one turn out -- fine wine or vinegar? Sorry, you're gonna have to pop the cork and taste for yourself.
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, Matthew Trulli submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Matthew Trulli, Respondent (AWC 201203204201, February 5, 2014).
Trulli was first associated with a FINRA member firm in 1998 and by August 2004, he was registered with Foothill Securities, until April 24, 2012. The AWC asserts that Trulli had not been the subject of any prior disciplinary action.
The AWC asserts that Respondent Trulli owned and operated a winery, and that at the time of his hiring by Foothill Securities, in accordance with his firm's policies and NASD Conduct Rule 300: Outside Business Activities, he had disclosed this outside business to Foothill Securities.
The AWC alleges that in 2007, in order to pay expenses of his winery, Trulli borrowed $100,000.00 from two family friends, who were also his customers at Foothill. A promissory note provided for interest payments and a maturity date of February 15, 2012. The AWC asserts that the loan was not repaid in full.
Pressing for Funds
In 2008, in need of more funds to pay winery expenses, Trulli purportedly borrowed an additional $40,0000 from the same two friends/clients, and, once again, a promissory note provided for interest payments and a March 1, 2009 maturity. The AWC asserts that this loan was not repaid.
A New Varietal
In 2009, Trulli apparently needed to pay office and winery expenses and borrowed $50,000 from two other relatives. About a year and a half after the loan, a promissory note provided for repayment of about $65,000 in as yet unpaid interest and principal, with a July 1, 2014 maturity date. This loan has not yet matured.
Scraping the Barrel
In 2010, needing to secure a lease on premises related to his winery, Trulli allegedly borrowed $7,500.00 from the earlier two friends/customers involved with the 2007 and 2008 loans but did not reduce the terms to a promissory note. As of the date of the FINRA AWC, the loan had not been repaid.
During the periods of loans referenced above, Foothill's compliance procedures prohibited its registered representatives from borrowing money from customers." Moreover, NASD Conduct Rule 2370: Borrowing From or Lending to Customers similarly prohibited such loans absent satisfaction of certain requirements, among which was compliance with the member firm's written loan policies.
On May 2,2008, and May 21, 2010, Trulli completed Foothill Securities Outside Business Activity Reports and in response to queries about his receipt of loans from clients, he answered "NO."
The AWC alleged that Trulli's conduct cited above constituted violations of FINRA Rule 2010 and NASD Conduct Rule 2370. In accordance with the terms of the AWC, FINRA imposed upon Trulli a one-year suspension from association with any FINRA-member broker-dealer in any capacity. The AWC explains that no monetary sanction was imposed because Trulli filed a Chapter7 bankruptcy petition on November 25, 2013.
Bill Singer's Comment
The only aspect of this case that is a tad unclear is why the AWC referenced Trulli's 2009 $50,000 loan. Although listed under a heading titled: "BORROWING FROM CUSTOMERS" the AWC only characterizes the two lending individuals as "relatives of Respondent," which is in contradistinction to the characterization of the other two lenders as "his customers at Foothill and family friends." If the 2009 lenders were not customers of Trulli's, then I'm not sure why the reference to their loan was noted in this AWC. If they were both customers and family members, then the AWC should have clarified that point. Notwithstanding, the loans to the customer/family members would have been sufficient to warrant the regulatory action taken.