Marco Antonio Daniel of Chula Vista, California, a stockbroker with PFS Investments, Inc., was suspended for four months from association with any Financial Industry Regulatory Authority (FINRA) member firm in any capacity after engaging in unauthorized loans with a customer and engaging in an unauthorized outside business activity. Letter of Acceptance, Waiver and Consent, No. 2014042807501 (Jan. 8, 2016).
According to the AWC, from August 2009 through May 2010, while Daniel was associated with PFS Investments Inc., his firm’s written policies and procedures had prohibited lending arrangements between associated persons and customers under any circumstances. Daniel reportedly certified on the firm’s annual compliance questionnaire that he read and understood the firm’s policies and procedures. Yet, the AWC indicated that during the relevant period, Daniel had accepted ten loans which totaled $19,015 from a customer of the firm. The loans were reportedly not repaid until 2015, after the customer had complained to PFS.
The AWC indicated that Daniel had failed to disclose the loans to the firm or receive the firm’s approval. Further, on November 9, 2010, after Daniel had accepted the loans, he had inaccurately certified to the firm on an annual compliance questionnaire that he had not borrowed funds from a customer. FINRA found that Daniel had violated NASD Rule 2370 and FINRA Rule 2010 in this regard.
The AWC further indicated that from August 2009 – June 2010, Daniel had purchased pre-owned automobiles at a dealer auction intending to resell the automobiles for a profit. The AWC stated that Daniel had used some of the funds borrowed from the aforementioned customer in order to engage in the activity. Daniel went on to purchase an estimated ten automobiles that he repaired and resold in private fashion. FINRA found that Daniel engaged in this outside business activity without providing notice to PFS, and therefore violated NASD Rule 3030 and FINRA Rule 2010.
Firms and individuals, not surprisingly, are prohibited from unauthorized use of customer funds, borrowing of a customer’s securities or funds, forgery, non-disclosures or misstatements of material facts, and various deceptions and manipulations. Such conduct can also be found to violate criminal and other civil laws, and be subject to sanction from the federal and state government bodies.
Selling away, also known as private securities transactions or undisclosed outside business activities, occurs when a stockbroker engages or participates in the sale of securities to investors outside of the formal approval of the securities firm with whom they are associated.
As a general matter, stockbrokers are only permitted to engage in the solicitation or sale of investments and investment related products approved by their firm. However, quite frequently, stockbrokers solicit, participate, or directly engage in the sale of typically unregistered securities or investments without the approval and outside of the auspices of their firm. These investments may take on many forms, and may include the recommendation of an outside money manager, or a hedge fund, which may sometimes turn out to be a Ponzi scheme. Sometimes these outside investments may include off-shore securities, insurance trusts, stocks or ownership interests in small businesses, startup ventures, corporate debentures, mortgage notes, private placements, promissory notes, oil & gas interests, real estate partnerships, pre-IPO shares, and a variety of other investments.
Public disclosure records reveal that on July 7, 2014, Daniel became subject to a pending customer dispute, where the customer has alleged that Daniel borrowed money from her that was not repaid and that Daniel accepted the funds to purchase shares of Primerica stock, where Daniel later failed to return her purchase money and gains when he sold the shares.
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