An irreverent Wall Street Blog
by Bill Singer
by Bill Singer
Advisor Borrows From Customers To Acquire Practices
June 24, 2013
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, David Albert Urovsky submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of David Albert Urovsky, Respondent (AWC 2011028731401, June 18, 2013).
Urovsky first became registered in 1988. From 2002 until August 29, 2011, he was registered with FINRA member firm Raymond James Financial Services, Inc. ("RJFS").
2012 State Action
The AWC indicates Urovsky's prior disciplinary history as including a Maryland Securities Commissioner issued a Consent Order (Docket No. 2011-0413, March 1, 2012) against Urovsky that found, among other things, that he had borrowed money from five customers (referenced as customers LF, DR, DV, CT and AT ) without disclosing the loans to RJFS. Pursuant to that Consent Order, the Maryland Securities Commissioner imposed, among other things, a $20,000 fine, a three year suspension from acting in a principal capacity at a
broker-dealer and required special supervision against Urovsky.
SIDE BAR: In reality the prior Maryland action involves five of the six customers referenced in the FINRA AWC and seems to cover the same loans and circumstances -- but for the fact that the State resolved its case in March 2012, more than a year before FINRA's June 2013 settlement. For more details of the nature of the customer-adviser relationships and the purposes for the loans, read the Consent Order.
FINRA Allegations
The AWC alleges that Urovsky engaged in the following loans from his customers:
- April 2005: 150,500 from LF at 1% interest per month with the full repayment due on June 30 ,2010. Documented in a May 7, 2010 promissory note. Urovsky paid off in 2010.
- August 2009: $100,000 from husband and wife DR and JR. DR was a former RJFS registered representative and colleague of Urovsky's. The August 28, 2009, promissory note memorialized 10% annual interest on the loan with full repayment due in June 2012. Urovsky paid off in May 2012.
- August 2009, $100,000 from DV, who was a former RJFS registered representative and colleague of Urovsky's. The August 28, 2009 promissory note memorialized memorialized 10% annual interest on the loan with full repayment due in June 2012. Urovsky paid off in May 2012. In 2011, another RJFS registered representative, who was a co-signer on the original note, assumed full responsibility for repayment of the remaining debt to customer DV.
- January 2010: $50,000 from husband and wife CT and AT. The January 14, 2010, promissory note memorialized 8% annual interest on the loan with full repayment due on July 31, 2014. Urovsky paid off in October 2011.
SIDE BAR: It appears that all of the subject loans were either timely repaid in full by Urovsky or, in the case of the August 2009 DV loan, assumed by another individual. In the absence of any assertion in the AWC that the assumed loan was not timely repaid, I will infer that it was.
According to the AWC, Urovsky used the $350,500 from the first three loans to acquire financial advisory practices from departing RJFS colleagues. Although RJFS knew about Urovsky's intention to purchase those practices, the AWC alleges that the member firm did not know about the loans at issue.
The AWC further alleges that Urovsky used the $50,000 from the fourth loan for personal expenditures.
RJFS Policies
During all relevant times, RJFS' procedures generally prohibited registered representatives from borrowing money from a customer, subject to the firm's discretion to grant exceptions for such circumstances as when the lender is a family member, friend or otherwise has a preexisting relationship with the representative. In order to obtain such a waiver, an RJFS executive officer must approve the loan. In contravention of his firm's policies, Urovsky failed to seek or obtain approval before entering into the loans.
U5
On August 29, 2011, RJFS filed a Uniform Termination Notice for Securities Industry Registration (Form U5) stating that Urovsky had been discharged for "failure to follow firm policy relating to borrowing money from a client" and "failure to properly supervise satellite office."
FINRA Sanctions
The AWC asserts that by borrowing $400,500 money from six of his customers in contravention of RJFS's procedures, Urovsky violated NASD Conduct Rules 2110 (for conduct before December 15,2008) and 2370 and FINRA Rule 2010 (for conduct after December 14,2008). In accordance with the terms of the AWC, FINRA imposed upon Urovsky a $5,000 fine and a one-month-suspension from association with any FINRA member in any and all capacities.
Statement of Corrective Action
As part of the settlement, Urovsky submitted the following:
DAVID A. UROVSKY'S STATEMENT OF CORRECTIVE ACTIONIn accordance with the March 1,2012 Order Granting Conditional Registration (the "Order" entered by the State of Maryland, I have undertaken the following corrective action:1 I will not apply or reapply, in the capacity as a control person, principal, or owner, for registration in Maryland as a broker-dealer through March 1,2015. I shall not apply or reapply, in the capacity as a control person, principal, or owner, for registration in any state as a broker dealer.2. For a period of three years from the date of my application for registration as an agent of Capitol Securities Management, Inc. ("Capitol Securities"), I will not serve in a supervisory capacity, including as a branch manager, for a broker-dealer.3. Mark Melrose, or his successor at Capitol Securities or his successor at any other broker-dealer where I may be employed or other\vise affiliated (jointly "Mr. Melrose"), shall be responsible for supervision and/or monitoring my transactions and conduct, through March 1, 2015, as follows:a) Daily review and analysis of all order tickets;b) Analysis of all monthly statements for all of my accounts;c) Quarterly discussions with a sampling of my customers in order to ascertain any potential problems; andd) Review of all correspondence to and from me and my customers.4. Mr. Melrose shall visit my place of business on at least a weekly basis through March 1,2013 and on at least a bi-weekly basis through March 1,2015.5. Capitol Securities or any successor broker-dealer where I may be employed or otherwise affiliated will send a "welcome letter" to each new client account relationship which I open through March 1, 2015. The ''welcome letter" identifies Mr. Melrose as my supervisor and invites the client(s) to contact Mr. Melrose with any questions or concerns which they may have.6. I will attest, on a quarterly basis through March 1, 2015, that I am in compliance with Capitol Securities written policies and procedures, that I have not entered into any loan arrangements with existing clients, and that I understand the policies and procedures relating to loans with clients, as set forth by FINRA, the State of Maryland, and Capitol Securities.7. 1 will discuss my outside business activities, if any, with Capitol Securities' Chief Compliance Officer on a quarterly basis through March 2015.Sincerely,David A. UrovskyThis Corrective Action Statement is submitted by David Urovsky. It does not constitute factual or legal finding by FINRA, nor does it reflect the views of FINRA or its staff.
Bill Singer's Comment
Compliments to FINRA for imposing a fine and suspension that are on the relatively low-end of the scale and which seem to have taken into account the apparent lack of intent by Urovsky to defraud his customers, his good-faith in memorializing the terms of the loans, and his record of full repayment. This is certainly an unusual case given the use of the the bulk of the proceeds.
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