David Paul Rankin, Jr. of Lexington, Kentucky, a registered representative with Lexington Investment Company, Inc., was fined $5,000 and suspended for three months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacities after consenting to findings that he obtained loans from customers in violation of his firm’s policies. Letter of Acceptance, Waiver and Consent, No. 2015044345701 (Nov. 18, 2015).
According to the AWC, on May 26, 2010, Rankin had borrowed $15,000 from his customer, J.S., pursuant to a promissory note agreement. The AWC stated that Rankin borrowed an additional $14,500 from J.S. on June 30, 2010. The promissory notes required payments of principle and interest to be made, yet Rankin never made any payments on the notes.
At the time of the borrowing, Rankin’s firm’s procedures had strictly prohibited representatives from borrowing money from firm customers. Rankin reportedly failed to notify anyone at his firm regarding the promissory notes, and never sought written approval prior to borrowing money from J.S.
According to FINRA Rules 2370 and 3240, representatives such as Rankin are prohibited from borrowing money from customers unless the firm has written procedures that allow for the lending, where the relationship meets certain criteria, and where the representative follows requirements for notice and pre-approval of the lending arrangement.
FINRA found that Rankin’s conduct of borrowing from a customer in contravention of firm policy and without pre-approval was violative of NASD Rule 2370, FINRA Rule 3240, and Rule 2010, leading to his fine and suspension. Rankin was also forced to pay restitution of $29,500 to J.S.
Firms and individuals, quite obviously, are prohibited from unauthorized use or borrowing of a customer’s funds or securities, forgery, non-disclosure or misstatement of material facts, and manipulations and various deceptions. These activities are also subject to the civil and criminal laws and sanctions of federal and state governments.
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