An irreverent Wall Street Blog
FINRA Says Call It A Loan On A Debt That You Owe
January 13, 2017
We got a registered representative. We got a
married couple who are clients of said rep. We got a $35,000 loan from the
couple to . . .? Well, now we got a problem because the loan was either made
solely to the rep or it was made solely to his unregistered wife. Under the
first set of circumstances, the loan likely violated FINRA's and the employer
firm's rules. Under the other set of circumstances, it may be much ado about
nothing. The problem is that the case was settled but the question remains
unanswered. In the background, if you listen, you may hear Jackson Browne singing "can we call it a loan, and a debt that I owe, on a bet that I lost?"
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, Matthew J.
Giannone submitted a Letter of Acceptance, Waiver and Consent
("AWC"), which FINRA accepted.In the Matter of Matthew J.
Giannone, Respondent (AWC 2015048067801, December 28,
2016).
The AWC asserts that Giannone
was first registered in 1996 and since May 2013 has been registered with FINRA
member firm Oppenheimer & Co., Inc. The AWC states that Giannone had no
prior disciplinary history with the Securities and Exchange Commission, FINRA,
any other self-regulatory organization, or any state securities
regulator.
The Married
Couple
In pertinent part, the AWC
asserts:
In July 2015, while associated with Oppenheimer, a married couple who were long-time customers of Respondent (the "Customers'') loaned Respondent $35,000. Respondent did not notify or seek pre-approval from Oppenheimer for the loan, which was not formally documented. ln August 2015, the Customers complained to Oppenheimer about the loan. Oppenheimer then required Respondent to repay the loan in full, which he did in August 2015. with interest.
Texting
Additionally, the AWC alleges
that while registered at Oppenheimer but without the firm's knowledge, used his
personal mobile telephone to text with eight customers. Pointedly, Gainnone
allegedly sent 41 text messages and received 61 text messages. The AWC further states that none of the 102
texts cited were retained or reviewed by
Oppenheimer.
Violations
The AWC deemed that Giannone's
borrowing from customers constituted violations of FINRA Rules 3240 and 2010;
and that his texting constituted violations of FINRA Rules 4511(a) and
2010.
Sanctions
In accordance with the terms of
the AWC, FINRA imposed upon Giannone a $7,500 and a 30-business-day suspension
from association with any FINRA member firm in any and all
capacities.
Bill Singer's
Comment
According to
online FINRA BrokerCheck records as of January 13, 2017,
Oppenheimer "Discharged" Giannone on November 15, 2016 based upon allegations
that:
ON OR ABOUT, 10/31/16, GIANNONE ADVISED OPPENHEIMER THAT HE EXECUTED A FINRA AWC. SUBJECT TO FINRA ACCEPTANCE, THE AWC STATED THAT GIANNONE EXPRESSLY DID NOT CONSENT TO FINRA'S FINDINGS, AND GIANNONE COULD TAKE AN INCONSISTENT POSITION IN OTHER PROCEEDINGS NOT INVOLVING FINRA. FINRA FOUND THAT MARRIED CLIENTS OF GIANNONE LOANED HIM $35,000 AND GIANNONE DID NOT SEEK PRE-APPROVAL FROM OPPENHEIMER.
The
BrokerCheck records further disclose under "Firm
Statement":
OPPENHEIMER REVIEWED THESE ALLEGATIONS PREVIOUSLY. MR. GIANNONE AND HIS WIFE ASSERTED THAT THE LOAN IN QUESTION WAS MADE TO MRS. GIANNONE. OPPENHEIMER DIRECTED THAT THE LOAN HAD TO BE REPAID AND DETERMINED THAT IT WAS.
- In July 2015, a married couple loaned Giannone $35,000;
- the loan was not documented;
- Giannone did not notify Oppenheimer about the loan;
- Giannone did not obtain Oppenheimer's prior approval to accept the loan;
- in August 2015, the couple complained about some aspect of the loan to Oppenheimer;
- in August 2015, in response to the couple's complaint, Oppenheimer ordered Giannone to repay in full the loan;
- in August 2015, Giannone repaid the loan in full with interest;
- around October 31, 2016, Giannone advised Oppenheimer that he had executed the AWC, which found that "married clients of Giannone loaned him $35,000 . . .";
- purportedly somewhere as early as August 2015 but no later than October 2016, Giannone and his wife asserted that the loan was made to Mrs. Giannone; and
- Oppenheimer discharged Giannone on November 15, 2016.
To be blunt, above points 1 - 10
don't add up. For starters, a critical issue remains unresolved; namely, did
the couple lend the $35,000 only to Giannone or did they lend the money only to
Mrs. Giannone?
If the loan was to Giannone's
wife, then there are legitimate questions as to whether the transaction fell
under the ambit of FINRA regulation. The thing is, though, that the AWC asserts
that the loan was made only to Giannone, a fact that is also reiterated on
BrokerCheck: "FINRA found that married clients of
Giannone loaned him $35,000 . . ." In contrast, note that the
BrokerCheck "Firm Statement" discloses that
"Giannone and his wife asserted that the loan in question was made to Mrs.
Giannone . . ."
Either the loan in question was made by the
couple to a registered representative, who is subject to FINRA rules and his
firm's written supervisory procedures; or, in contradistinction, the loan was made
to the unregistered wife, who would not seem subject to FINRA rules or a member
firm's policies. And no, I am not such a dolt as to be oblivious to the fact
that any registered rep could attempt to circumvent FINRA's rules and a member
firm's compliance protocols by structuring a loan from a customer so as to have
the borrower designated as a spouse or any third party.
If FINRA is
diligently policing its beat. then the self-regulatory organization should
acknowledge that there is a profound inconsistency between its AWC, which
asserts that the questioned customer loan was made to registered representative
Giannone, versus Oppenheimer's BrokerCheck statement, which
raises an alternative explanation that the loan was made to Mrs. Giannone. At
some point in time, there needs to be a singularity about what happened.
Consider that a standard boilerplate provision in FINRA AWCs (and included in
Giannone's) is found under "III. Other
Matters":
Respondent understands that:. . .C. If accepted:. . .4. Respondent may not take any action or make or permit to be made any public statement, including in regulatory filings or otherwise, denying, directly or indirectly, any finding in this AWC or create the impression that the AWC is without factual basis. Respondent may not take any position in my proceeding brought by or on behalf of FiNRA, or to which FINRA is a party, that is inconsistent with any part of this AWC. Nothing in this provision affects Respondent's: (i) testimonial obligations; or (ii) right to take legal or factual positions in litigation in which FINRA is not a party.
In fairness to Giannone, whatever
confusion presently exists as to whom the loan was made is
the fault of either FINRA or Oppenheimer because the cited BrokerCheck
language was drafted by his former employer and merely alleges what
he told the firm. That being said, FINRA is on notice that there is a
substantive inconsistency between its AWC and a BrokerCheck
disclosure. That inconsistency creates an "impression that the AWC is
without factual basis," as to the issue of whether a loan was made solely
to a registered representative or to his unregistered wife, and, as such,
whether the transaction was properly the subject of FINRA's jurisdiction. If,
in fact, Giannone's purported explanation of the loan to his wife is accurate,
one wonders why he did not forcefully contest the regulatory charges.
Similarly, why did Oppenheimer discharge Giannone in November 2016, which was
15 months after the firm learned about the August 2015 loan? Moreover, Giannone
apparently immediately complied with his firm's August 2015 directive to repay
the loan. Keep in mind that FINRA did not Bar Giannone but
merely suspended him for 30 business days. Frankly, there is a lot about this case that
just doesn't make much sense.
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