According to FINRA, John Nicholas Terzis was barred from association with any FINRA member in all capacities for borrowing money from a customer without firm approval and making false statements on compliance questionnaires.
Pursuant to a ten-year written promissory note, Terzis borrowed $200,000 from one of his customers, a 69-year-old senior who had health issues, without first notifying or obtaining approval from his member firm. To facilitate the borrowing, Terzis assisted the customer with transferring funds to her personal bank account. For almost two years, Terzis made monthly payments on the loan but ceased making payments thereafter. Given his financial circumstances at the time he borrowed the money, Terzis did not have a reasonable expectation of being able to repay the loan in full.
Additionally, Terzis falsely stated in response to a firm compliance questionnaire that he had not issued or participated in any promissory notes outside of the firm and had not solicited clients to lend funds.
FINRA rules strictly regulate loans between registered representatives and their customers because such arrangements create serious conflicts of interest and potential for exploitation of the broker-customer relationship. The rules generally prohibit such loans unless they fall within specific exceptions, such as when the customer is an immediate family member or a financial institution in the business of making loans. Even when an exception might apply, representatives must obtain their firm's approval before borrowing from a customer.
The facts of this case are particularly troubling. Terzis borrowed a substantial sum ($200,000) from an elderly customer with health issues, creating a situation where a vulnerable customer was exposed to significant financial risk. The fact that Terzis did not have a reasonable expectation of being able to repay the loan at the time he borrowed the money suggests that he knew or should have known that borrowing from the customer was inappropriate and likely to result in harm to her.
The cessation of loan payments after almost two years meant that the elderly customer suffered a significant loss. While she may have legal remedies to try to collect the debt, the practical reality is that if Terzis did not have the financial resources to make the loan payments, he likely does not have the resources to repay the principal either.
Terzis's false statements on the firm's compliance questionnaire compound the violation. These questionnaires are an important part of a firm's supervisory system, designed to identify potential problems before they escalate. By lying on the questionnaire, Terzis prevented his firm from discovering the loan and taking action to protect the customer.
For investors, this case offers critical lessons. Never lend money to your broker or financial advisor, regardless of the circumstances or promises made. Such arrangements are generally prohibited and create serious conflicts of interest. If your broker requests a loan, report it immediately to their firm and to FINRA. Be especially cautious if you are an older investor or have health issues that might make you more vulnerable to exploitation.
