According to FINRA, Theodore M. Serure was fined $20,000 and suspended for four months in all capacities for borrowing approximately $7.3 million from customers without providing notice to and receiving pre-approval from his member firms.

Although Serure was never indebted for more than $2 million at any time because he used some loan proceeds to pay off earlier customer loans, the total borrowed over the relevant period was approximately $7.3 million. Serure repaid all customer loans, and none of the customers complained. All customers from whom Serure borrowed money were wealthy and financially sophisticated. Serure had been close friends with each customer for decades, some since childhood.

Despite these mitigating factors, borrowing from customers without firm notice and approval is a serious violation because it creates conflicts of interest and can lead to exploitation of customer relationships. Firms need to know about borrowing arrangements to assess appropriateness, monitor for conflicts, and ensure customers are not being pressured or taken advantage of.

Even when borrowing from wealthy, sophisticated friends who are also customers, registered persons must provide notice to their firm and obtain pre-approval. The fact that customers are wealthy and sophisticated does not eliminate conflicts of interest or the need for firm oversight. The personal relationships may actually heighten the need for firm supervision to ensure those relationships are not being exploited.

The four-month suspension and $20,000 fine hold Serure accountable for borrowing substantial sums from customers without firm approval, while recognizing mitigating factors including full repayment, sophisticated customers, long-standing friendships, and no customer complaints.