LPL Financial discharged Engelmann on 11/29/2019 after discovering that he twice violated the firm’s policy regarding borrowing money from clients. The firm filed a Form U5 indicating that he had been terminated regarding the policy.
Upon receipt of the Form U5, FINRA began its own investigation into the matter and found that Engelmann twice made loans with firm customers. The first was in April 2017, when Engelmann borrowed $40,000 from a client through an LLC he owned. The money was intended for a real estate venture Engelmann owned. The loan was documented with a promissory note which included the loan’s terms.
The second loan occurred in October of 2018 in the amount of $75,000 for the same real estate venture through the Engelmann-owned LLC. The repayment for this loan, including interest, began on November 1, 2018.
Both loans have since been repaid to the respective customers. Neither of these customers were family members, nor were the loans family-related. Engelmann never notified the firm of these loans, and denied borrowing money from customers on three compliance questionnaires (10/31/2017, 1/28/2019 and 8/15/2019.)
Engelmann signed an Acceptance, Waiver & Receipt (AWC) letter, accepting the FINRA sanctions. These included a four-month suspension beginning 10/30/2020 and ends on 3/1/2021, and a fine of $5,000.
Securities Arbitration Claims For Stockbroker Loans
FINRA’s Borrowing Rule does not prohibit borrowing from any “customer” but restricts such activity to “any customer of such person.” Consequently, solely going by FINRA Rule 3240, an associated person could conceivably borrow or lend to a customer of the employing firm provided that said customer was not serviced by the registered person at issue. In reality, many FINRA member firms do not allow stockbrokers or financial advisors to borrow from any customer and all loans must be disclosed to the firm. Generally, a financial advisor should never take advantage of a customer’s financial circumstances or trust in the advisor. Whether it’s a loan, investment or gift, a financial advisor is violating FINRA rules by taking money from a customer.
Have You Invested With Timothy Engelmann?
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