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FINRA Stock-to-Cash Sweep: Principal Fudged Fed Form G-3
An Ohio-based Registered Principal agreed to a $15K fine and a 60-day suspension to settle FINRA charges he improperly assisted customers in participating in a Stock to Cash ("STC") program; his customers took out stocks to cash loans totaling more than $7.8 million. Details of this case are similar to the case involving an LPL Broker, except this individual had issues complying with Federal Reserve requirements, as explained below.
Federal Reserve Board Regulations. As part of the process of obtaining a loan through the Stock to Cash loan program, customers were required to provide documentation setting forth the intended use of proceeds in order to ensure compliance with Federal Reserve Board regulations restricting the extension of margin credit. In order to avoid violation of Regulation U, borrowers who pledge marginable securities must complete a Federal Reserve Form G-3, also referred to as a Purpose Statement, which requires them to certify whether they will be using the loan proceeds to buy margin securities and, if not, to describe the specific purpose of the credit; the Form G-3 includes a warning that the falsification of the purpose of the credit by a borrower on the form violates the margin rules.The Principal allegedly completed the Purpose Statement for the customers, indicating that they would be using the proceeds for real estate, but at the time Principal completed these forms, he didn't know how the customers would be using the proceeds, or whether the customers had already decided to use the proceeds to buy insurance products. As a result, Principal caused numerous Purpose Statements to be inaccurate, and a copy of the completed statement for each customer was subsequently provided to the promoter of the program. This is FINRA Case #2007008935003: [FINRA Disc. Actions Reported in February]
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