The first mistake was when the stockbroker borrowed money from a customer. The second mistake was using some of the loan proceeds to go into a used-car business but not notifying the employer brokerage firm about the outside activity. The third mistake was failing to timely repay the customer. The fourth mistake . . . well, to be cynical, that would be when the stockbroker got caught.
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, Marco Antonio Daniel A/K/A Tony Daniel submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Marco Antonio Daniel A/K/A Tony Daniel, Respondent (AWC 2014042807501, January 8, 2016).
Daniel entered the securities industry in October 2002, at which time he was associated with with PFS investments Inc., where he subsequently became registered in 2005. The AWC asserts that Daniel had no prior disciplinary history with FINRA, the Securities and Exchange Commission, any other self-regulatory organization or any state securities regulator.
The AWC asserts that on November 28, 2008, Daniel certified on the PFS Annual Compliance Questionnaire that he had read and understood the firm's policies and procedures.
Borrowing from Customer
Join me as we travel back in time to what the AWC characterizes as the "Relevant Period' between August 2009 and May 2010, during which time the AWC alleges that Daniel accepted ten loans totaling $19,015 from a PFS customer. The loans were not repaid until 2015.
The AWC cites Daniel for not disclosing to PFS or getting its approval for the 10 loans at issue during the years 2009 and 2010.
No Year-End Disclosure
Additionally, the AWC asserts that on November 9, 2010, Daniel inaccurately certified on PFS's Annual Compliance Questionnaire that he had not borrowed money from any customer, in violation of NASD Rule 2370 and FINRA Rule 2010. By way of a little bit of nostalgia, NASD Rule 2370, the old Borrowing Rule, was replaced in 2010.
Stuck In Pre-Owned Neutral On OBA
The AWC alleges that between August 2009 and June 2010, Daniel:
purchased pre-owned automobiles at a dealer auction with the intent to resell the automobiles for profit. Daniel used some of the funds he borrowed from the customer to engage in this activity. During this time period, Daniel purchased approximately ten automobiles that he repaired and resold privately. Daniel engaged in this outside business activity without providing written notice to PFS.
The AWC asserts that Daniel's used-car biz constituted violations of NASD Rule 3030 (retired in 2010) and FINRA Rule 2010.
In accordance with the terms of the AWC, FINRA imposed upon Daniel a four-month suspension from association with any FINRA member in any capacity.The AWC advises that Daniel had "submitted a sworn financial statement and demonstrated an inability to pay. In light of the financial status of Respondent, no monetary sanctions have been imposed.
Bill Singer's Comment
According to FINRA's online BrokerCheck records as of February 1, 2016, PFS received a customer complaint against Daniel on July 7, 2014,. That complaint, which PFS estimated as potentially exceeding $5,000 in compensatory damages, alleged:
CUSTOMER ALLEGES THAT I BORROWED MONEY FROM HER THAT HAS NOT BEEN REPAID AND THAT I ACCEPTED MONEY TO PURCHASE SHARES OF PRIMERICA STOCK AND THAT I FAILED TO RETURN HER PURCHASE MONEY AND GAINS WHEN I LATER SOLD THE SHARES.
I am a bit puzzled by the apparent inconsistency in the BrokerCheck disclosure that characterizes the customer complaint as "Pending" and the AWC's assertion that the loans were repaid in 2015 after the customer complained. If there was only one customer from whom Daniel borrowed and, in fact, that lender was fully repaid, then it would seem appropriate for FINRA to require PFS to update the regulatory disclosure of the event to confirm that status. If there was more than one lending customer involved or the loans were not fully repaid, then something should be added to the present disclosure to conform it to the facts. Finally, if an unresolved dispute remains about the alleged failure by Daniel to return the customer's "purchase money and gains," then that should be better set forth in the disclosure because as presently written the lending dispute and the unreturned money/gains dispute seem conflated into one issue.
Also, let's be clear about one thing: the loans probably would likely never, ever have come to anyone's attention but for the fact that something went wrong between Daniel and the lending customer. What went wrong was probably Daniel's failure to timely repay the loan.
Finally, while we're clearing the air, let's also keep in mind that the borrowing on which this FINRA regulatory settlement is based occurred between 5 3/4 and 6 1/2 years ago. Similarly, the AWC was not published until 1 1/2 years after FINRA member firm PFS received the customer complaint cited above. Also, keep in mind that Daniel's financial situation has apparently deteriorated over the ensuing years to the point where the self-regulatory organization declined to impose a fine. I am NOT saying that Daniel should not be suspended; frankly, the multiple violations argue that the sanction was likely justified. I am saying that the four-month suspension is so far removed from the alleged misconduct that it's questionable as to whether the time off will accomplish anything meaningful at this late date. Not blaming FINRA. Just making a point.
READ a detailed analysis of FINRA Rule 3240: Borrowing From or Lending to Customers by veteran regulatory lawyer Bill Singer