Year in and year out I warn you folks to steer clear of the same catalog of violations and, just as surely, many of you take that as a challenge to try to come up with new ways of committing the same old tricks (and getting away with it). Alas, your efforts are in vain. The result is always the same: fines, suspensions and bars. Then again, I can't really complain. If it weren't for those intrepid souls among you who are committed to disregarding warnings and going out on a limb, lawyers like me would have little to do.
Let's Keep It Between Us
Maybe the customer caught you and maybe it was just a misunderstanding — it doesn't make much of a difference to FINRA. You can't pay a customer to prevent him or her from filing a complaint against you and then hide the settlement from your firm or the regulators. While the idea of hush money may seem like an attractive option to you, it's just not an acceptable industry standard. Registered Supervisor Lance Jeffrey Ziesemer (AWC/2007008964901/January 2009) paid $29,000 to a public customer as part of such an effort and wound up with a $5,000 fine and a 20-business-day suspension. In the case of Registered Rep Jun M. Chiu (AWC/2007010948901/January 2009), her $3,125 payment to a customer in order to settle a complaint resulted in a $5,000 fine and a 10-business-day suspension in all capacities.
On the other hand, maybe you think it's more prudent to flash the cash at the point of purchase. Some folks think that a good way to close a new account or get the large order is to guarantee against loss. Okay, not such a bad concept. However, the problem with some ideas is that while they may fly in other industries, they don't in ours. Registered Rep. Michael D. Kirk (AWC/2007010653301/January 2009) guaranteed a public customer against loss and was fined $2,500, and suspended 10 business days in all capacities.
Just ‘Til Payday
Times are tough, and recent commission checks are likely coming in a bit light. Not to worry (you think), I'll just ask some clients to lend me a few bucks. Broker Brian Mark Wacik (2006006537201/January 2009) borrowed $45,000 from a customer. Unfortunately, there were a few problems with that loan: First, his firm's policy prohibited borrowing from a customer. Second, he lied about the existence of the loan. Third, and perhaps most telling, he failed to repay the loan. It was one thing to violate the rules by taking the loan; it was quite another to stiff the lending client. FINRA had the last word when it not only ordered Wacik to repay to the customer the loan plus interest, but then barred him for good measure.
Of course, there are also some compliance curveballs with these issues. For example, sometimes things are so financially difficult that your customers may ask you for a few dollars. Depending upon who's doing the asking, you might just feel compelled to dip into your pocket and help the guy or gal out. Being the diligent person that you are, you ask around and look it up. Yeah, you thought so, FINRA restricts your ability to borrow from customers. But lending to them ought to be all right, you think. Well, you would be wrong.
FINRA Conduct Rule 2370: Borrowing From or Lending to Customers pretty much says what needs to be said in its title. Subject to the exceptions set forth in the rule, not only can't you borrow from customers, but you also can't lend to customers. That was precisely the rude awakening that greeted Principal Nick Chiappetta (AWC/2007009850501/January 2009), who lent $14,222.45 to public customers in violation of his firm's written procedures, which prohibited such lending (unless the customer is an immediate family member — not the situation in Chiappetta's case). In keeping with the maxim that no good deed goes unpunished, Chiappetta was fined $5,000, and suspended 5 business days in all capacities.