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Regulatory Sanctions

A Broker’s ‘Unsolicited’ Loan from Customer Quickly Becomes Past Due

April 1, 2019

by Howard Haykin


According to a broker, shortly before her first of 2 hospitalizations, a friend offered to assist with extraordinary expenses by providing an unsolicited loan of $14,000. For some reason, things quickly turned from bad to worse.



In July and August 2017, the broker with SunTrust Investment Services borrowed a total of $14,000 from a firm customer to whom she was not related. She did not notify SunTrust of this borrowing arrangement or seek the firm's approval.


In November 2017, the customer asked the broker for a promissory note for the money - which the broker created, signed and provided to the customer. Two months later, in January 2018, after only $600 of the loan had been repaid, the customer contacted SunTrust. The firm reimbursed the customer.


Furthermore, in September 2017, the broker signed a compliance attestation in which she falsely affirmed that she had not personally borrowed “money or securities from any client of SunTrust Banks, Inc. or any client of a SunTrust Banks, Inc. affiliate."



In April 2018, SunTrust U5’d (discharged) the broker for having “violated FINRA guidelines by obtaining a loan from a client without first obtaining written approval.” FINRA's follow-up investigation concluded with a 3-month suspension based on the broker’s violation of FINRA Rule 3240(a), Borrowing From or Lending to Customers. No fine was issued in light of the broker’s financial status.



FINANCIALISH TAKE AWAYS.    Though FINRA provided few details in this case, it's probable that the friend/customer’s account of the loan transaction differed markedly from the one provided by the broker. That said, the broker, who had 18 years’ experience, should have known better. Maybe she should have considered going to SunTrust for an advance on her commissions to cover her “extraordinary expenses.” Then again, who knows how much the broker produced in commissions. and ... hindsight is always 20:20.



This case was reported in FINRA Disciplinary Actions for March 2019.

For further details, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2018058158801.