In response to the filing of aComplaint on January 26, 2012, by the Department of Enforcement of the Financial Industry Regulatory Authority ("FINRA"), Respondent Thomas P. Casper submitted an Offer of Settlement dated August 15, 2012, which the regulator accepted. Under the terms of the Offer of Settlement, without admitting or denying the allegations in the Complaint, Respondent Thomas P. Casper consented to the entry of findings and violations and to the imposition of the sanctions. FINRA Department of Enforcement,Complainant, vs Thomas P. Casper, Respondent (Offer of Settlement, 2010025125101, August 29, 2012).
Casper began his industry career in 1990 with Paine Webber; went to Dain Raucher from 1996 to 2004; and to Stifel, Nicolaus & Company in 2004 until his resignation in November 2010, at which time he joined Northland Securities, Inc. until his departure in December 2011.
Stifel prohibited its registered employees from borrowing money from Stiel customers without prior review and approval by the firm's Compliance Department, which was solicited via a Request for Permission to Enter Into A Lending Arrangementform.
SIDE BAR: 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.
.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.
According to the Offer of Settlement, without Stifel's prior approval, in April 2008, Casper borrowed:
Casper repaid the $6,000 loan to his mother in February 2010, and had repaid $3,000 to his mother-in-law as of June 2011.
On May 28, 2009, Casper submitted to Stifel's Compliance Department a Request for Permission to Enter into a Lending Arrangement with a Relative Form whereby he disclosed a proposed loan from his brother but reported that he needed the money for "[h]ome improvement projects and repairs." The actual reason Casper sought to borrow the money was because he was behind on his mortgage.
Without Stifel's prior approval, the Offer of Settlement alleged that Casper borrowed:
Casper paid back the $10,000 loan in February 2010 but had not repaid the $8,600 loan as of June 2011.
On May 21, 2010, Casper completed a Stifel branch audit questionnaire on which he denied having "personal loans with clients, family members, or other Stifel employees?" At the end of September 2010, Casper disclosed to his Stifel branch manager the $8,600 loan from his brother; and, in response to the manager's request, he submitted a belated loan form dated September 28, 2010, explaining that the loan was for medical bills.
The Offer of Settlement alleges that in addition to the family loans, Casper borrowed from three elderly widowed customers pursuant to terms under which he paid no interest, put up no collateral, and did not commit to a fixed term for repayment. Only one of these three loans from his elderly customers was memorialized in the form of an I.O.U. The loans allegedly were for:
During a compliance review of Casper's email in April 2010, Stifel identified communications from Casper which suggested possible selling away by him in two private companies-VodoModo and Senticare. Stifel investigated, and issued a letter of caution regarding the communications to Casper in July 2010.
In or about October 2010, Stifel allegedly conducted a review of Casper's Stifel brokerage account statements. The Offer of Settlement states that the review revealed deposits of cashier's checks and money orders into Casper's Stifel brokerage accounts and more than $30,000 in cash withdrawals from ATMs located in and near a local casino for the period 2009 through 2010.
A member of Stifel's General Counsel's Office met with the branch manager and Casper around October 2010 to discuss the reviewed transactions and asked for bank statements. At this meeting, Casper allegedly denied receiving customer loans and refused to provide the requested statement; thereafter, he resigned from Stifel on November 5, 2010.
Following Casper's resignation, on or about November 9, 2010, Stifel learned that Casper had borrowed $10,000 money from Customer B. Around November 11, Casper told his former manager that he had received a call from the elderly customer during which she told him that she had received a telephone call from the manager had had been confused about the loan - Casper asserted to the manager that, in fact, the customer had extended a loan to another broker.
On December 9, 2010, FINRA Staff sent Casper a FINRA Rule 8210 request for information requiring Casper's response no later than December 16, 2010, and seeking, among other demands:
Casper responded with a signed letter dated December 14, 2010, in which he did not disclose any customer loans, did not produce the bank/brokerage statements. The Offer of Settlement alleged that Casper's response was evasive to the extent that he attempted to reframe the FINRA 8210 demand as seeking information about loans that were related to VodoModo, Senticare, or other private entities, which may have been referenced during Stifel's selling away inquiry:
With respect to FINRA Matter No. 20100251251, and pertaining specifically to VodoModo, Senticare, and/or any other private businesses/entities, I did not receive any loans from customers at Stifel, Nicolaus & Company and or Northland Securities, Inc. as referenced in and in response to item #1 and all subsequent items heretofore.
In response to Casper's narrowed interpretation of the scope of the question, FINRA replied that it had not limited its demands for information to loans "related" to VodoModo, Senticare, or any other entity.
After speaking to his former manager on December 21, 2010, and learning that Stifel had disclosed the Customer B loan to FINRA, Casper then disclosed that one loan to FINRA; and, subsequently, disclosed to the regulator the existence of loans from his mother, mother-in-law, and brother. In explaining the $10,000 loan from Customer B, Casper informed FINRA:
[A] client of mine, loaned my wife and I $10,000 from her personal banking account in the spring of 2009 to help us out during a financially stressful and difficult time. My wife and I were separated at the time, and were in the midst of a possible divorce and experiencing some financial distress, including an adjustable rate mortgage (ARM) increase and out of pocket costs for advanced marriage counseling. No note was signed as a promise to pay back. There was no interest on this loan. I did not disclose this loan to Stifel Nicolaus, and regret not doing so at the time. I was and am extremely embarrassed by the situation. The loan is paid back in full.
Thereafter, Casper did not disclose the loans from the two other elderly clients and refused to produce his bank records based upon privacy issues. Following additional communications between FINRA and Casper, around April 3, 2011, Casper produced the requested bank account statements.
In a request to Casper dated April 11, 2011 and issued pursuant to Rule 8210, the Staff requested information relating to certain transactions identified in Casper's bank and brokerage statements. Among the transactions identified was a $5,000 deposit into Casper's credit union account dated July 22, 2010. The deadline for Casper's response was April 25, 2011.
On April 21, 2011, Casper called the Staff and disclosed the loan from Customer C and admitted that the $5,000 deposit identified by the Staff was the proceeds of that loan. Casper followed up his call to the Staff with a letter containing his 8210 response, dated April 21, 2011.
On June 16, 2011, the Staff took Casper's on-the-record testimony and questioned Casper about Customer A. Casper admitted for the first time, that he had borrowed money from Customer A in late 2008 or early 2009.
Based upon the above, FINRA asserted three causes of action against Casper:
FINRA Rule 3240 and its predecessor NASD Rule 2370 prohibit registered persons from borrowing money from their customers except in limited circumstances, and then only if the member firm has written procedures permitting the borrowing. Stifel prohibited its registered employees from borrowing money from customers of Stifel during the relevant period. As described above, Casper borrowed money from customers without Stifel's pre-approval. The borrowing was in violation of NASD Rule 2370 and FINRA Rule 3240 and, by virtue of those violations, NASD Rule 2110 and FINRA Rule 2010.
FINRA Rule 2010 requires that "A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade." As described above, Casper made numerous misrepresentations to Stifel about the loans he received, in violation of FINRA Rule 2010.
FINRA Rule 8210 prohibits persons subject to FINRA's jurisdiction from providing false or misleading information to FINRA in response to a Rule 8210 request for information. An associated person may not limit or place conditions on an 8210 request. As described above, Casper failed to timely or fully disclose customer loans in his 8210 responses . By engaging in this conduct, Casper committed numerous violations of FINRA Rule 8210 and, by virtue of those violations, FINRA Rule 2010.
In accordance with the terms of the Offer of Settlement, FINRA imposed upon Casper a Bar from associating with any FINRA member in any capacity.
As comprehensive and persuasive a FINRA Offer of Settlement as I have ever seen - great job!
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.
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