Ex-LPL Advisor Borrowed $2.2M From Clients for Hawaii Dream House
Many people dream of owning a vacation home in Hawaii. An ex-LPL advisor apparently made the dream a reality -- by borrowing $2.25 million from seven clients to build a beachfront rental property with 6 bedrooms, 6.5 bathrooms, bamboo floors and a granite island kitchen, and contravening FINRA rules to do so.
The property, Pakalana Sanctuary, is currently available to rent at $1,750 a night -- or for sale for $2.4 million, according to an online real estate listing.
But FINRA barred the advisor in question, Raymond Daniel Schmidt, from the industry last week for allegedly taking loans from his clients and failing to notify his employer of outside business activities, as well as for making false statements and failing to comply with FINRA requests for information.
Schmidt, who was affiliated with LPL from 2006 to 2014, started borrowing money from his clients in 2009 to build a luxury vacation rental property, according to the FINRA records. Over the course of three years, he borrowed money from seven clients, with loans ranging from $100,000 to $850,000, FINRA says.
It is not clear from the FINRA documents whether Schmidt repaid the loans; Schmidt did not return calls seeking comment. While he submitted to the FINRA bar, he did not "accept or deny" FINRA's findings, according to his Letter of Acceptance, Waiver and Consent.
Schmidt has one pending client complaint on his BrokerCheck record. In it, the client alleges damages of $375,000 for breach of fiduciary duty, elder abuse, unfair business practices and professional negligence "relating to plaintiffs' investments in a Hawaii real estate project through a promissory note issued by" Schmidt, according to the note in his BrokerCheck file.
SOME LOANS ALLOWED
FINRA rules permit registered representatives to borrow money from clients, but only under severely limited circumstances, and only if reps have the consent of their employer. LPL's policy prohibited the type of loans Schmidt was taking, according to a firm spokesman.
In 2012, FINRA says, Schmidt finished construction of the 4,200-square-foot rental property on the island of Hawaii.
"Pakalana offers an eco-conscious lifestyle with many features such as bamboo construction, insulation made of recycled denim and a $60K reef-protecting aerobic waste-water treatment system," according to the real estate listing. "No stone was left unturned by this meticulous builder."
Photos on the Pakalana's Facebook page show a two-story wooden structure with large balconies, beautiful sunsets and a peacock.
Over a five-year period, Schmidt submitted five LPL compliance questionnaires in which he denied borrowing client funds, FINRA records say.
Schmidt did not notify LPL of this outside business activity until 2013, FINRA alleges, adding that even then, he misrepresented that he did not have any ownership stake in the property.
Schmidt started in the industry in 2000, and resigned from LPL in August 2014, records show.
He allegedly failed to respond to FINRA requests for information; when the regulator's enforcement's division called, he said he wouldn't provide any documents and would not cooperate with the investigation, according to FINRA.
- Ex-Advisor Racks Up $16M in Client Complaints
- Regulatory Woes Hammer LPL Profits
- After 8 Years, Morgan Stanley Claws Back $380K From Ex-Employee
- Meet the Advisor Who's Cost Oppenheimer Nearly $10M in Fines