Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with broker-advisors who’ve obtained loans from their clients. When a broker asks a client for a loan, it almost always leads to trouble for the customer. Under securities laws, they are not permitted to do this, except under special conditions. The reasons are quite clear: They are supposed to propose suitable investments and prudently manage their money. Obtaining a direct loan is a conflict of interest that usually leads to chicanery.
Philip Anthony Simone, a former broker with AXA Advisors who worked with the firm from 2017-2019, borrowed a total of $133,000 from two clients. That violated three rules of FINRA, the main U.S. securities regulator, that prohibits brokers from obtaining loans from customers, who were elderly.
The AXA broker then “created and submitted falsified firm account statements and supporting documents to a third-party bank in support of a mortgage application,” FINRA stated. Simone was fined $12,500 and suspended from the securities industry for 11 months, beginning in November, 2020.
According to FINRA, Simone received loans totaling $43,000 from the first customer, and loans totaling $90,000 from the second customer. Neither client were immediate members of his family and were both approximately 71 years old (when the loans were obtained). The loans, however, weren’t documented in writing, although Simone promised the customer the borrowed funds would repaid in full at 12% interest, within one year.
Simone’s loans from the second customer were in the form of two promissory notes, which provided that the loan would be repaid in full, with 15% interest, within 120 days. Simone repaid the second customer, plus interest, and repaid the first customer approximately $8,000. He also falsely stated that he had not borrowed funds from a client and made a false statement to the first customer in order to obtain additional time to repay the loans.
In addition, Simone did not disclose or seek prior approval from AXA for the loans, FINRA noted, “even though he knew the firm’s rules prohibited him from borrowing funds from his firm’s customers.” FINRA Rule 3240(a) prohibits registered representatives from borrowing from or lending money to his or her customer unless (1) their member firm employer has written procedures that permit the borrowing and lending of money between registered representatives and customers, and (2) the borrowing or lending arrangement meets at least one of five circumstances specified in the rule. Even if these requirements are satisfied, FINRA Rule 3240(b) requires registered representatives to seek and obtain prior written approval from their member firm employer, unless the firm’s procedures provide otherwise.
Have you invested with broker-advisors who have borrowed money from you, invested in high-risk investments or not honestly reported their performance? FINRA and the SEC have strict rules on disclosing risk profiles on all investments sold by brokers and investment advisers. If they fail to fully inform you of downside risk, you may have a case in arbitration. Firms are also legally required by FINRA to monitor and supervise what their brokers are selling – their investments must be vetted and authorized by the firms – and have an obligation to investors to fully reveal true risk and return information about the vehicles sold. Investors can file FINRA arbitration complaints if these rules are broken.
If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!