An irreverent Wall Street Blog
by Bill Singer
by Bill Singer
Customer Loans Earn Broker A Fine And Suspension
December 26, 2014
This one starts with a registered rep getting $65,000 in
loans from two customers. Then you have the spark that sets off the explosion:
the rep fails to repay the loans. Then comes the discharge
by the firm, which instigates a regulatory investigation. In the end, it all
ends badly for the guy who borrowed the money. After the dust settles, however,
we are left wondering what took the regulator so long to resolve what appears
to have been a slam-dunk
case.
Case In
Point
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, Stuart
A. Cahill submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which
FINRA accepted. In the Matter of Stuart A. Cahill, Respondent (AWC
2014040300901, December 8, 2014).
In 1994, Cahill first became
registered and by 2004 he was associated with FINRA member firm Triad Advisors,
Inc., where he remained until March 2013. The AWC asserts that he had no prior
formal disciplinary history with the Securities and Exchange Commission, any
self-regulatory organization or any state securities
regulator.
$65,000 In
Loans
The AWC asserts that in June
2006, Cahill borrowed $30,000 from a Triad Advisors customer and in September
2009, he borrowed $35,000 from a second Triad customer. The AWC asserts that
both customers took unspecified legal actions after Cahill failed to make all
the required payments on the loans.
Denials
At the time of the loans,
Triad's written supervisory procedures purportedly prohibited its registered
representatives from borrowing money from customers. Moreover, on the firm's
2008 annual compliance questionnaire, Cahill allegedly falsely denied
soliciting or receiving a loan from a customer - at that time, he had both
solicited and received the 2006 loan. Finally, after the customer involved with
the 2006 loan had complained to Triad about Cahill's non-payment, Cahill
claimed to have only borrowed from that complaining customer and failed to
disclose the other customer involved with the 2009 loan.
Discharge
Online FINRA BrokerCheck records
as of December 26, 2014, disclose that on February 28, 2013, Triad "Discharged"
Cahill based upon allegations of:
The BrokerCheck record advises that Cahill stated that the:FAILURE TO FOLLOW FIRM POLICY WITH RESPECT TO BORROWING MONEY FROM A CLIENT.
ISSUE IS SETTLED OUT OF COURT
- On January 21, 2014, a customer filed a FINRA Arbitration (14-00081) seeking $100,000 in damages arising from insurance, real estate security, and the borrowing of funds from the customer. The causes of action appear to include suitability.
- On February 1, 2013, a lawsuit appears to have been initiated in the Luzerne County Court of Common Pleas, Luzerne, PA (2012-9443) seeking $31,447.51 in damages arising from the alleged failure to repay a $30,000 loan.
Sanctions
FINRA deemed Cahill's conduct to
constitute violations of NASD Conduct Rules 2370 and 2110. In accordance with
the terms of the AWC, FINRA imposed upon Cahill a $10,000 fine and a one-year
suspension with any FINRA member in all capacities.
Bill Singer's
Comment
I think it a fair question to
ask what took so long for FINRA to resolve this case via settlement -- or,
ultimately, take the Respondent to a contested hearing.
It appears that Triad was
unaware of the loans when they were made, so, in fairness to FINRA, I am not suggesting
that the self-regulatory organization should have been expected to have acted
much before, say, early 2014. Triad discharged Cahill on February 28,
2013, however,and as of that date FINRA was on
notice about the loans and the lawsuit in Luzerne, PA. As such, the AWC settlement
between FINRA and Cahill occurred something like 22 months after Cahill's
termination by his firm.
You'd sort of think that
way, way, way before the expiration of nearly two years that
FINRA would have either settled this matter or taken it before a hearing panel
for adjudication. Keep in mind thatby the date of the
AWC settlement, the loans at issue were nearly 8 and 5 years of
age.