In today's BrokeAndBroker.com Blog, we have what I often refer to as a "yes, but" case. I'm sure you have encountered such ambivalence with many matters in your life. You get it why something was wrong. You may even agree with the punishment. On the other hand, your mind seems to prod you with "however" and "but," and you're left uneasy. Consider this recent FINRA AWC settlement in which a registered person is suspended by the self-regulator in 2015 for a 2011 loan made by a friend.
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, Raymond Sardina submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Raymond Sardina, Respondent (AWC #2013038581401, March 19, 2015).
In 1998, Sardina entered the securities industry and in 2000
first became registered. In 2007, he was
registered as a sales assistant with FINRA member firm Raymond James &
Associates, Inc., where he eventually became a registered financial
advisor. The AWC asserts that Sardina
had no prior disciplinary history in the securities industry.
Friend AND Customer
The AWC asserts that in 2011, Sardina borrowed $10,000 from a close friend, who was also a Raymond James customer -- when the loan was repaid in 2012, the lender was still Sardina's friend and a customer of the firm.
Matters of Disclosure
The AWC asserts that Sardina failed to notify Raymond James that he had received the loan from a customer and further failed to obtain the firm's prior approval for the transaction. During the relevant times, the AWC asserts that Raymond James prohibited its employees from borrowing money from customers.
Additionally, the AWC asserts that on January 23, 2012, Sardina
falsely answered "NO" on Raymond James' 2012 Annual Compliance Questionnaire to
a query asking whether he was involved in any outside business relationships
with customers including the giving or receiving of loans. At the time of his
answer, the AWC asserts that the loan was still outstanding.
The AWC asserts that:
On October 11, 2013, the Firm submitted to FINRA a Form 4530 reporting that Sardina had been fined $10,000 and would be suspended for one week for receiving a customer loan.
FINRA deemed Sardina's borrowing from a firm customer violated both Raymond James' policies and FINRA Rules 3240 and 2010. Additionally, Sardin'as misrepresentation on the annual questionnaire was deemed a violation of
FINRA Rule 2010.
In accordance with the terms of the AWC, FINRA imposed upon
Sardina a one-month suspension from associating with any FINRA registered broker-dealer
in any capacity.
Bill Singer's Comment
It is a question often asked of securities industry lawyers by clients not eager to fess up: If they haven't detected the violation by now, what's the chance that they ever will?
Here is a perfect example of how a
false reliance on the passage of time can set you up for a very, very nasty
Sardina borrowed money in 2011 and fully repaid the loan in
2012. It was not until October 2013 that Raymond James notified FINRA that it
had internally fined him and also suspended him for one week. How did Raymond James learn about the
loan? Unfortunately the AWC doesn't say.
Looking back we see the landmark events as being spread over about two years: from 2011's loan, through 2012's repayment, to 2013's in-house sanction. Then nothing happens for about a year and a half. Which brings us to March 2015, at which time FINRA settles with Sardina and imposes a one-month suspension. To FINRA's credit, the regulator did not impose a fine - I wish that there were at least some acknowledgment in the AWC that the non-fining was a byproduct of the imposition of a $10,000 fine by Raymond James but, as such, that's nothing more than my surmise.
What I'm not quite understanding is the value or purpose of FINRA tacking on in 2015 a further one month suspension, which occurs nearly four years after the loan was made and three years after its repayment. It seems more ticky-tacky than sincere and, frankly, seems like a couple of punches to the kidney thrown underneath a pile of bodies on a football field after the whistle blows the play dead.
Moreover, just what the hell was FINRA doing since October 2013 when it was on notice per Raymond James' regulatory report about the incident and the firm's in-house sanctions? If it takes FINRA that long to resolve what most industry professionals would view as a slam-dunk case, no wonder the real fraudsters seem to be having a field day out there.
READ: http://brokeandbroker.com/PDF/FINRABorrowingRule.pdf for a detailed analysis of the FINRA Borrowing Rule.