Former Million-Dollar Merrill Broker Barred For Not Cooperating in Covid Relief Loan Probe
Continuing its crackdown on brokers who may have improperly sought pandemic relief loans, the Financial Industry Regulatory Authority has barred a 19-year ex-Merrill Lynch broker who declined to cooperate with an investigation into his pursuit of a loan meant for small businesses.
The settlement, which was finalized August 30, stuck out as Madison had been a relatively successful broker with $1.1 million in revenue and $150 million in assets when Merrill hired him from Stifel Financial in 2017.
George Miller, a lawyer at Shustak Reynolds & Partners, who was not involved in the case, said that Madison may have “seen the writing on the wall” in deciding to settle but also noted that brokers risk additional exposure or potentially criminal liability if additional facts surface during hearings.
“Potentially there could be other legal reasons not to produce documents to Finra, depending on the nature of the alleged conduct,” Miller said. “It’s not inconceivable that there could even be criminal ramifications.”
Finra, as in a number of other enforcement actions over pandemic relief loans this year, found Madison violated its ‘catch all’ Rule 2010, which requires representatives to “observe high standards,” and bars “any unethical business-related misconduct, regardless of whether it involves a security,” according to the Finra letter. He also violated its Rule 8210 about cooperating in providing information and testimony, the regulator said.
Finra began investigating after Merrill filed a U5 termination notice, which said it had discharged him for allegedly refusing to cooperate with its own probe of whether he had wrongly applied for and received an Economic Injury Disaster Loan, according to the settlement letter.
Madison entered the industry in 2001, serving one- to four-year stints at Jefferies, Goldman Sachs, Credit Suisse and Barclays Capital before joining Stifel in 2015 by way of the firm’s acquisition of Barclays’ U.S. wealth management business, according to BrokerCheck.
His only outside business listed is a trustee of a non-family trust, the database shows.
In other cases this year, Finra in July fined and suspended a former Merrill registered rep who was discharged after the firm concluded that she had improperly obtained funds for a non-existent real estate property management business through the EIDL program. The regulator that month also fined and suspended a former Wells Fargo Advisors broker who allegedly sought to borrow through the same program to fund his online trading account.
Those cases were brought separately from a review Finra is conducting of brokers who may have taken pandemic loans for undisclosed outside businesses.
Brokers and registered reps aren’t the only ones in the spotlight over alleged abuses of pandemic relief programs.
Registered investment advisory firms also may have gouged the Paycheck Protection Program, a federal program providing forgivable loans to small businesses affected by the pandemic, for more than $36 million, according to an August-released study authored by William Beggs of the University of San Diego and Thuong Harvison of the University of Arizona.
The study, titled “Fraud and Abuse in the Paycheck Protection Program? Evidence from Investment Advisory Firms,” estimated that more than 6% of $590 million in PPP funds received by companies in the investment management industry consisted of “statutory overallocations to firms abusing the Program.”
Nearly 3,000 RIAs–representing nearly a quarter of the RIAs eligible for PPP funds–had received loans in just the first round of the program in the spring of 2020, according to the study.