An irreverent Wall Street Blog
by Bill Singer
by Bill Singer
Stockbrokers Borrow From Customers For Car and Condo
January 5, 2015
There may be times when a registered person has a need to
borrow money and, for whatever reason, a customer may be deemed the best
source. In businesses and industries all
over the country, customers get involved in lending to and borrowing from those
with whom they have a business relationship. Frankly, it's not all that rare an
event or that big a deal. On Wall Street, however, the whole lending/borrowing
thing with a customer runs afoul of so many prohibitions and restrictions that
it's rarely an advisable route for a registered person to pursue. In two recent regulatory settlements, we see how
a customer loan for the purchase of a condominium and another loan towards a car landed two industry
respondents in a mess.
One 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, Monica Arreola
Perez submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA
accepted. In the Matter of Monica Arreola Perez, Respondent
(AWC #2014039707901, December 19, 2014).
In and Out and
In
In 2005, Perez became associated
in a non-registered capacity with an affiliate of FINRA member firm PFS
Investments, Inc.; and in 2006, Perez became associated in a non-registered
capacity with PFS, where she remained until she apparently failed to take a
FINRA registration examination and was terminated in September 2007.
Thereafter, in January 2009, PFS renewed Perez's association status and she
subsequently first became registered in September 2009. The AWC asserts that
Perez had no prior disciplinary history.
Getting
Personal
The AWC alleges that in May
2011, an individual with whom Perez had a personal relationship opened a brokerage
account at the PFS.
SIDE BAR: I have no idea whatsoever what FINRA desired me to infer or the regulatory intended to imply by referencing a "personal relationship." I get that there is a distinction between a "personal" and a "business" relationship but, geez, we're all supposedly adults here and it might have been just a wee bit helpful for FINRA to explain the nature of this referenced relationship -- as in, you know, just friends or dating or living together. I mean there's friends and then there's friends with benefits.
In any event,
Perez and her personal-relationship customer got to the point that in June
2011, Perez allegedly borrowed $5,000 from this customer for the purported
purchase of a car. The AWC asserts that the loan was memorialized pursuant to
an installment note; however, Perez allegedly repaid only $1,000 of the
loan.
Not With Any
The AWC asserts that from June
1, 2011 through July 31, 2014, PFS policies prohibited registered
representatives from borrowing money from any
firm customer.
From Bad To Worse
The AWC alleges that during the
relevant time, Perez never sought pre-approval from PFS to borrow money from
the customer; and, in fact, on three occasions in December 2011, January 2013,
and November 2013, she falsely responded on her firm's annual compliance
questionnaires that she had not borrowed money from any firm customer. As part
of her annual responses, she further affirmed having read and understood
compliance manual; and that she had agreed to comply with its policies and
procedures.
Mr. His
Name
Online FINRA
BrokerCheck records as of January 5, 2015, disclose that a
lawsuit was filed in Superior Court of the State of California on December 4,
2013, seeking damages estimated by the firm to be in excess of $5,000 based
upon allegations:
[CUSTOMER] HAS FILED SUIT AGAINST ME REQUESTING THA [sic] I REPAY A LOAN AND THAT HIS NAME BE REMOVED FROM A CAR NOTE THAT HE AND I CO-SIGNED.
The online records further disclose that the lawsuit settled on March 20, 2014, in the amount of $8,500 with no individual contribution from Perez.
FINRA Has A
"NO" Of Its Own
FINRA alleged that by improperly
borrowing money from a the customer, Perez violated FINRA Rules 3240 and 2010. In accordance with the
terms of the AWC, FINRA imposed upon Perez a one-month suspension from
association with any FINRA member in any capacity. No monetary sanction was
imposed based upon Perez's sworn financial statement and demonstrated inability
to pay a fine.
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, Gloria Gonzalez
Andrus submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which
FINRA accepted. In the Matter of Gloria Gonzalez Andrus,
Respondent (FINRA AWC #2013037263701, December 19,
2014).
In 1997, Andrus entered the
securities industry with FINRA member firm Frost Brokerage Services, Inc. where
she remained until her termination on June 11, 2013. The AWC asserts that
Andrus had no prior relevant disciplinary history.
Goin'
Condo
The AWC alleges that in
September 2012, a customer loaned Andrus $390,000 to be used towards the
purchase of a condominium. The loan was memorialized in a three-year promissory
note. The AWC asserts that Andrus repaid
$300,000.
Frost(y)
Reception
During the relevant times, the
AWC alleges that Frost Brokerage's written supervisory procedures permitted
loans from customers to registered representatives subject to limited
circumstances and dependent upon prior notice and approval; however, Andrus did
not comply with said procedures in that she did not request nor received
approval for the subject loan.
By way of brief recap, it's not
looking particularly bad at this point. Sure . . . Andrus should have notified
Frost Brokerage about the loan and should have obtained prior approval. That's a
violation as far as these things go. One exacerbating factor that does not seem in play
here is that Andrus paid down about 75% of the loan and there is no suggestion
that she had defaulted on the alleged $90,000 balance.
Unfortunately, Andrus allegedly
falsely certified on her 2012 annual compliance questionnaire that she had not
received any loans from her brokerage customers. That's not a move calculated
to endear her to her employer or any regulatory that may start poking
around.
Condo
Contravention
Online FINRA
BrokerCheck records as of January 5, 2015, disclose that on
May 15, 2013, Frost Brokerage "Discharged" Andrus based upon
allegations:
ACCEPTED A LOAN FROM A CLIENT IN CONTRAVENTION OF FINRA RULE 3240 AND FALSELY CERTIFIED, IN CONTRAVENTION OF RULE 2010, THAT NO LOAN HAD BEEN RECEIVED. ACCEPTED GIFTS FROM THE SAME CLIENT AND FALSELY CERTIFIED, IN CONTRAVENTION OF FINRA RULE 2010, THAT NO GIFTS HAD BEEN RECEIVED.
Closing
Costs
FINRA alleged that Andrus
violated FlNRA Rules 3240 and 2010. In accordance with
the terms of the AWC, FINRA imposed upon Andrus a $5,000 fine and a two-month
suspension from association with any FINRA member in any
capacity.