Most Wall Street registered reps didn't quite hear the bit after the "till death do you part" portion of their wedding vows where they were also asked if they took the Financial Industry Regulatory Authority as their lawfully wedded self-regulator. If they had listened carefully, they would have heard it, particularly when they were told that they could kiss the bride and, thereafter, plant a big, fat, wet one on FINRA's lips. Yuck! In any event, as a recent regulatory settlement shows, FINRA is in bed between a registered and unregistered spouse.
Case In Point
In response to the filing of a Complaint on July 27, 2017, by the Financial Industry Regulatory Authority's ("FINRA's") Department of Enforcement, Respondent Thomas Lawrence submitted an Offer of Settlement dated September 18, 2017, which the regulator accepted. Under the terms of the Offer of Settlement, without admitting or denying the allegations in the Complaint, Respondent Thomas Lawrence consented to the entry of findings and violations and to the imposition of the sanctions. FINRA Department of Enforcement, Complainant, vs Thomas Lawrence, Respondent (Order Accepting Offer of Settlement, FINRA Office of Hearing Officers, 2016051945101, September 22, 2017) (the "Order").
The Order asserts that after having been associated with three FINRA member firms from 1989 to 2006, Lawrence was associated with FINRA member firm Ameritas Investment Corp. from June 30, 2006, until December 27, 2016.
The 85-Year-Old Customer
The Order asserts that in 2002, Lawrence's wife introduced him to an 85-year-old individual, who became his friend. By 2007, this individual was a securities customer of Lawrence and purportedly remained as such until at least May 2015. The Order refers to the elderly friend/customer as the "Customer." At some point in 2009, the Customer loaned $10,000 to Lawrence's wife.
SIDE BAR: Although the Complaint characterizes the Customer as a "retiree," there is no such reference in the Order.
The 86-Year-Old Customer Who Is Now 96
The Order alleges that in November 2013, Lawrence and his wife asked the Customer (then 96 years old) for a $39,364.43 loan to help them pay their taxes. According to the Order, "Lawrence and his wife asked Customer for the loan instead of seeking another source of financing because they were friends."
A Matter of Principal (and interest)
On November 30, 2013, the Customer wrote out a check payable to the United States Treasury for $39,364.43 and indicated "that the check was for Lawrence's 2012 taxes." Thereafter, on December 1, 2013, Lawrence allegedly drafted and signed a promissory note in which he and his wife agreed to repay to the Customer in 12 months the $49,364.43 in principal with 5% per annum interest. The promissory note's principal included the $10,000 loan to Lawrence's wife made in 2009.
The Order asserts that Lawrence failed to repay any portion of the Customer's loan and:
never had any discussion with Customer about repaying his loan, and has not spoken to him since early 2014.
Ameritas' Borrowing Policies
The Order asserts that during the relevant times, Ameritas' policies prohibited its associated persons from borrowing from customers other than immediate family members (and such family-borrowing required the firm's prior written approval.) Allegedly, Lawrence never pre-notified Ameritas about the Customer loan and never received his firm's required approval. Further, the Order alleges that:
14. Five times before Lawrence borrowed from Customer -- including less than three months before the loan -- Lawrence acknowledged to Ameritas that he was not allowed to solicit or accept a loan from a client for any reason.
15. Lawrence continued to acknowledge Ameritas's policy against borrowing from customers after he obtained Customer's loan, including in August 2014.
FINRA alleged that Lawrence's borrowing was in violation of FINRA Rule 3240 and Rule 2010. In accordance with the terms of the Order, FINRA imposed upon Lawrence a $5,000 fine, a 24-month suspension in all capacities, and ordered $41,332.65 restitution plus interest to the Customer.
Bill Singer's Comment
Compliments to FINRA on a nice, tight, and comprehensive Offer of Settlement. Tough to argue with anything here.
Of course, just because I'm a curious fellow, I'm sitting here wonderin' if the loan for the tax bill had been solely arranged by Lawrence's wife and the promissory note was solely between her and the Customer whether any of this would have become either a compliance or a regulatory matter.
Imagine that the family friend was an elementary school chum of the non-registered spouse and there was a history of lending back and forth between the two friends over the years. Sure, FINRA could take the position -- and do so with compelling merit -- that a registered rep can't do indirectly what is prohibited directly. But what if the registered person didn't negotiate the loan or become a party to the promissory note? If, on his or her own volition, the non-registered spouse borrows or lends money to a family friend, who is also a customer of the registered spouse at a FINRA member firm, and the self-regulator or the employer comes after the registered spouse, that would be a fascinating case on appeal.
Hey, what can I tell you? Just the way my mind works at times. Sort of human nature. Someone says I can't do something and I try to find a way to do it. If you ask me, nicely, maybe I would agree, but when you order me to do something and I had no input into that decision, well, you know, that's just like a challenge. I looooove challenges!
I can just imagine my stockbroker wife coming home and telling me that because she works for a FINRA member firm that I can't lend money to my closest friend, who also opened a brokerage account with my wife (and, go figure, her firm's affiliated bank opened an unauthorized bank account for that same friend). Who the hell is FINRA to tell me what I can do? I'm not registered with FINRA. To which my wife would say that she is and that I should calm down before she loses her job. To which I would say, hey, let 'em bring it on and then we'll both sue FINRA. Maybe we can get a lawyer to take our case on a contingency, I would ask. My wife would likely do what she often does, which is to ignore me, give me a cookie, pat me on the head, and tell me to go watch television.
For those of you unfamiliar with a hypothetical, my wife is not, in fact, a stockbroker, and she does not work for a FINRA member firm. On the other hand, I do like cookies and television.
When watching television together, my wife often asks me how many cookies I just ate. I usually say "two," even though I've probably had three . . . okay, four . . . fine, you happy, five. Like who the hell eats just two Oreo cookies? And which one of you doesn't pull them apart before eating them and get a bit upset if all the filling winds up on only one half? If you only had two, my cookie-counting and calorie-conscious wife asks me, how come there were ten cookies to start with but there are only three left? Maybe you ate them, I lamely suggest. No, she says without blinking, I only ate two. Let me do the cookie math for you, she says sarcastically. There were ten Oreos. I had two. That left eight Oreos. You say you only had two, which means that there should be six left but there are only three Oreos left. My wife is a very sharp lady. She has the eye of a hawk when it comes to cookies. Still . . . she wins the arguments but I get to eat five cookies all the same.