FINRA’s Department of Enforcement recently made public a Letter of Acceptance, Waiver and Consent (AWC) by which former LPL broker Mark Tyler Bonds agreed to a one month suspension and a $5,000 fine to resolve allegations that he borrowed money from a customer of his firm, in violation of FINRA rule 3240.
In the AWC, Tyler also acknowledged that he had lied in a questionnaire he submitted to LPL in December 2015. To the question, “Have you, or any related person or entity, borrowed or loaned any money or securities from or to another individual or entity?” Tyler answered, “No,” although he had indeed borrowed from a customer of LPL. This submission of false information constitutes a violation of FINRA Rule 2010.
Bonds, who had no previous disciplinary history with FINRA, had been with LPL since 2006. In 2016, when the issue of the rule 3240 violation came to light, he agreed with his firm on voluntary resignation. His termination is listed on Brokercheck as, “Employment Separation After Allegations.”
The incident that led to his termination last year and the recent sanctions from FINRA, took place in October 2015 when Bonds borrowed $52,000 from a customer of his firm. Bonds was a personal friend of said customer and although their account was handled by another representative, the loan was nevertheless in violation of rule 3240.
In few words, Rule 3240, Borrowing From or Lending to Customers, establishes that “No person associated with a member in any registered capacity may borrow money from or lend money to any customer of such person” unless:
- The firm specifically allows this type of transactions
- The customer belongs to the firm representative’s immediate family
- The customer is a financial institution that regularly offers loans
- The customer is also a registered person with the same firm
- “The lending arrangement is based on a personal relationship with the customer” outside the broker-customer relationship.
- “The lending arrangement is based on a business relationship outside of the broker-customer relationship”
FINRA has very specific parameters for enforcing this rule. Bonds, for example, had a personal relationship with the customer he borrowed from, but he was unable to establish that the borrower-lender relationship would have still existed, had the lender not been an LPL customer, which is FINRA’s criterion to allow that exception.
Considering the severity of his violation, Bonds got off lightly. In other cases, especially when the registered person has failed to repay the loan in time, FINRA has been known to administer harsher sanctions.
Back in 2012, Edward Allen Mantanona was barred from the industry after borrowing from a customer of his firm, Edward D. Jones & Co., twice, lying about it in questionnaires, failing to repay one of the loans and, finally, failing to collaborate with a FINRA investigation.
The application of exceptions that allow registered financial advisors to secure loans from their firm’s customers is an extremely complex matter. Therefore, I strongly advise seeking legal counsel before entering into any such relationship.
I hope you will consider Herskovits PLLC as a resource for all your securities law questions – securities law, including all financial industry employment matters, is our exclusive focus. Call to learn your rights and options: 212 897 5410 or Email