The Financial Industry Regulatory Authority Inc. has barred a former LPL Financial broker who borrowed money from clients without telling his firm to set up a luxury vacation rental property in Hawaii.
Raymond Schmidt, who was based in Oceanside, Calif., obtained $2.25 million in loans from seven customers between 2009 and 2012 without notifying his firm, Finra said in a settlement letter. Brokers are generally prohibited from borrowing funds from customers, except in certain circumstances, and they must notify their firms in all cases, according to Finra rules.
In this case, Mr. Schmidt submitted five compliance questionnaires to LPL in which he falsely denied borrowing funds and did not disclose the real estate investment in Hawaii as an outside business activity, according to the letter.
Mr. Schmidt agreed to the ban without admitting or denying the findings.
Mr. Schmidt eventually made disclosures about the property in Hawaii to LPL in 2013, but falsely reported that the loans were for construction of a personal residence and that he did not own any interest in the vacation rental property, according to Finra.
The disclosure, which is available through BrokerCheck, lists the property as the Pakalana Sanctuary, a 4,000 square-foot picturesque bamboo house in a beachfront community in Kanuela, Hawaii. It is listed for sale online by a real estate agent for $2.4 million.
When the property officially opened for business in January 2013, Mr. Schmidt, who is listed as the co-owner, said in a press release that, “being able to share my love of this beautiful island and all it has to offer to visitors is a dream come true for me.”
Mr. Schmidt could not be reached for comment. A number listed for Pakalana was not accepting voice mail.
Finra did not accuse Mr. Schmidt of failing to pay back the loans. He does, however, have pending customer complaint for $375,000 for constructive fraud and elder abuse “relating to plaintiff's investment in a Hawaii real estate project,” according to BrokerCheck.
Mr. Schmidt had been at LPL from 2006 until August, when he resigned while under internal review, according to the settlement letter.
An LPL spokesman, Brett Weinberg, declined to comment.
When Finra asked Mr. Schmidt for information about the loans in February, he said he would not cooperate with the investigation, the regulator said.