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Regulatory Sanctions

Broker Fumbles Personal Loan from Customer

May 19, 2017

by Howard Haykin


Personal loans to brokers from customers are bad for business. Yet they persist - perhaps in big numbers.Read this case, along with our ‘take-away’ for how firms might address such problems.


David Ladin, a registered rep, agreed to a $10K fine and a 4-month suspension to settle FINRA charges that he borrowed $12,000 from a customer and failed to notify his member firm of the loan or obtain its approval.


BACKGROUND.    Ladin, who resides in Ft. Lauderdale, FL, and entered the industry in 1999, was associated with Allstate Financial Services from late 2007 until January 2014. He currently is not associated with another FINRA member.


ACCORDING TO FINRA.    In October 2011, while associated with Allstate, Ladin borrowed $12,000 from a customer – who was neither an immediate family member nor a person who regularly engaged in the business of providing credit. The loan was documented by a handwritten IOU, which required Ladin to repay the loan within one year in equal $1,000 monthly payments. Ladin never told Allstate about the loan or obtained its approval – and, over a 3-year period, he completed the firm’s annual questionnaire indicating that he never accepted a loan from a customer.


Laden made some payments but failed to repay the loan in full. The customer filed an arbitration claim seeking, among other things, repayment of the loan. The case was settled.


For the record, Ladin also engaged in an outside business activity without notifying his employer – which, in turn, factored into the FINRA sanctions.


FINANCIALISH TAKE AWAYS.    Accepting personal loans from firm customers is much akin to “mixing business with pleasure.” The risks are simply not worth the rewards. While trust and confidence in business relationships can take years to build, personal loans to associated persons can engender distrust, and lead customers to take their business elsewhere. This scenario becomes even more likely if the associated person defaults on any terms of the personal loan.


That said, these concerns are generally ignored. Perhaps it’s because FINRA sanctions only about 25 brokers each year for accepting loans from customers. However, it’s likely that this practice is much more prevalent than one might initially suspect. And that's a problem for business.


So how might a firm avoid the possibility of personal loans from customers to brokers? One suggestion is to provide new customers with a sheet of “Do’s and Don’ts,” identifying specific practices that violate firm policy and/or industry rule, such as the following:


  • Personal loans to your broker.
  • Gifts to your broker.
  • Private securities transactions.
  • Verbal trade authorizations.
  • Discretionary authority.


This case was reported in FINRA Disciplinary Actions for May 2017.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2015046432001.