According to FINRA, Eric A. Fiallo was barred from association with any FINRA member in all capacities for refusing to provide documents and information requested during a FINRA investigation into his potential involvement with borrowing from a customer.
FINRA rules strictly limit circumstances under which registered representatives can borrow money from or lend money to customers. These restrictions exist because borrowing/lending relationships between representatives and customers create significant conflicts of interest and opportunities for exploitation. Representatives generally may not borrow from customers unless the customer is a financial institution regularly engaged in the business of lending, the customer is an immediate family member, or the member firm has procedures allowing such arrangements and has approved the specific arrangement.
When FINRA received information suggesting that Fiallo may have borrowed money from a customer, it opened an investigation. As part of that investigation, FINRA requested documents and information from Fiallo. He refused to provide the requested materials.
All persons associated with FINRA member firms have an absolute obligation to cooperate with regulatory investigations. This cooperation requirement is codified in FINRA rules and is a fundamental aspect of securities industry registration. When FINRA requests documents and information, associated persons must provide them. There are very limited exceptions (such as valid assertions of Fifth Amendment privilege against self-incrimination), but a blanket refusal to cooperate is not permitted.
Fiallo's refusal prevented FINRA from completing its investigation into whether he improperly borrowed money from a customer. Without access to relevant documents and information, FINRA could not determine the facts surrounding the potential borrowing or assess what, if any, regulatory violations occurred.
The bar imposed on Fiallo represents the most severe sanction available. A bar effectively ends an individual's securities industry career, as the person cannot be employed by or associated with any FINRA member firm in any capacity. While barred individuals can apply for re-entry after two years, such applications are rarely granted, particularly for bars based on failure to cooperate with investigations.
For investors, this case highlights the importance of being cautious about financial relationships with registered representatives beyond standard brokerage relationships. Lending money to or borrowing money from a financial professional should generally be avoided and may violate securities regulations. Investors should also verify the registration status and history of financial professionals through FINRA's free BrokerCheck service.
