Ex-Merrill Broker Who Borrowed from Client to Go Indie Gets Finra Suspension
In another reminder of regulators’ insistence that brokers notify firms about outside financial and business activities that could subject them to risky behavior, the Financial Industry Regulatory Authority has fined and suspended a former Merrill Lynch broker who borrowed $250,000 from a customer without his employer’s approval.
Ronald “Jake” Dawson, now a registered investment advisor in Lynchburg, Va., appears to have had good reason to have kept the loan under wraps. He borrowed the money “in anticipation of leaving Merrill” to remodel an office for a new business, according to a letter of acceptance, waiver and consent that Finra accepted on Wednesday.
Dawson, who became an independent broker with Waddell & Reed within two weeks of being allowed to “voluntarily resign” from Merrill in July 2016 and who now works at a different independent advisory firm, did not respond to a request for comment.
Although he “timely repaid” the loan with interest in August 2016 to the customer who was a lawyer and friend, his actions violated Finra Rule 3240 that restricts borrowing from customers and its Rule 2010 requiring adherence to “high standards of commercial honor and just and equitable principles of trade,” according to the regulatory letter. The loan was borrowed through a corporation Dawson set up to start his new business, it said.
Dawson, who accepted a 45-day suspension from working with a member firm and a $5,000 fine, without admitting or denying the findings, did not respond to a request for comment.
Merrill, which will consider allowing brokers to borrow from customers only if they are family members, said in a U5 regulatory filing that Dawson left while under review for conducting unapproved client events, for corresponding with a client without management approval, and for using his expense account for personal use. Merrill has recently revamped its expense account policies that it said have been widely misused.
Four months after Dawson joined Waddell & Reed, the independent broker-dealer discharged him for signing “client new account paperwork” that an unaffiliated broker had collected, according to his BrokerCheck history.
He and his business partner, Josh Stamm, now operate Legacy Wealth Management Group, a Lynchburg firm affiliated with Michigan-based registered investment advisor Caitlin John LLC. The parent RIA manages about $156.4 million on a discretionary basis, according to its September 2018 Form ADV regulatory brochure.
Dawson, who began his career as a “financial specialist” at Wachovia Securities in 2007 and who joined Merrill in early 2009, “saw major flaws with the direction the industry was taking and wanted to do something about it,” his biography on Legend Wealth’s website says.
“The vision for our company is to create an atmosphere where the client not only feels comfortable with the advice they are being given, but more importantly feels that we care as much for their goals as they do,” it says. “We can only create this by actually investing time into our clients’ lives with educational events, appreciation events, systematic investment reviews and steady communication with the families we serve.”
Stamm, who is listed on Legend Wealth’s website as its president and senior partner, was suspended by Finra in May for six months and fined $5,000for helping a Merrill customer borrow $500,000 from a third party without notifying the firm, according to his BrokerCheck history.
Stamm, who worked at Merrill from 2008 until his discharge a month before Dawson, did not receive compensation for his negotiations on behalf of the customer, according to his BrokerCheck record.
Calls to Stamm at Legacy Wealth went unanswered.
Andrew R. Park, a lawyer in Richmond who represented Dawson in the Finra disciplinary proceedings, did not immediately return a call for comment.