Watchdog bars ex-LPL broker who tapped client funds for Hawaii retreat

By Suzanne Barlyn

March 26 (Reuters) - A former LPL Financial LLC broker who borrowed nearly $2.3 million from clients to build a vacation rental property in Hawaii has been permanently barred from the securities industry in a settlement reached with Wall Street's watchdog.

Raymond Daniel Schmidt, who was affiliated with the unit of LPL Financial Holdings Inc in Oceanside, California, borrowed the money from seven clients between 2009 and 2012, a violation of industry rules, according to a settlement with the Financial Industry Regulatory Authority (FINRA) on Wednesday.

Schmidt neither admitted nor denied FINRA's findings, according to the settlement. Schmidt and an LPL spokeswoman could not be reached for comment on Thursday.

In a 2013 public regulatory filing, Schmidt disclosed his involvement in the "Pakalana Sanctuary" in Waimea, also known as Kamuela, on Hawaii's Big Island. He described the property as a "retreat center" and vacation rental where he spent 10 percent of his time.

But the venture began years earlier, without LPL's knowledge, FINRA said.

Schmidt bought the Hawaiian real estate in 2009 and opened it for business in 2012 as its only owner and operator, according to the settlement.

Securities industry rules generally prohibit brokers from borrowing clients' money. Brokers are also not allowed to engage in business activities outside of their firms without first notifying the firm. Even then, firms typically require their brokers to get approval for such ventures.

Schmidt initially did not tell LPL about the Hawaiian property or customers' loans in answers to several annual questionnaires that LPL requires its brokers to complete. He later disclosed the property to LPL, but denied owning an interest, FINRA said.

He resigned from LPL in August 2014 "while under internal review," FINRA said.

In February, Schmidt told FINRA's enforcement unit that he would not provide its staff with documents nor cooperate with its investigation, FINRA said.

It is unclear whether Schmidt repaid his clients' $2.3 million. Schmidt is the subject of a $375,000 lawsuit in a California state court, alleging elder abuse and negligence related to the plaintiff's Hawaiian real estate investment, according to Schmidt's public disclosure report.

The Hawaiian property, which includes six bedrooms and seven bathrooms, is listed for sale at $2.4 million, according to Zillow, the real estate website.

(Reporting by Suzanne Barlyn; Editing by Ken Wills)