PLNew Yorkhard
A NY broker deposits a $1,200 homeowners premium check from a client into the brokerage trust account on Day 1. On Day 5, before remitting to the insurer, the brokerage's operating account is overdrawn and the bookkeeper transfers $600 from the trust account to the operating account, intending to 'repay' it the following week from earned commissions. Which of the following is the most accurate characterization under New York law?
AThis is permissible because the broker has both legal title to the funds and an expected commission receivable to offset
BThis is permissible if the funds are restored within 30 days, as NY allows a curing period for short-term advances
This is a § 2120 fiduciary violation (commingling/conversion) regardless of intent to replace, and can support § 2110 license discipline plus civil and possibly criminal liability
DThis is permissible because Reg 194 only requires written disclosure of compensation, not strict trust-account discipline
Why this is the answer
Section 2120 makes premium received by the producer a trust fund held in a fiduciary capacity. Any movement of those funds to the operating account — even temporarily, even with intent to replace from anticipated commissions — is commingling/conversion. There is no 30-day cure period in New York. The conduct supports § 2110 disciplinary action (suspension, revocation, civil penalties) and can also support criminal larceny charges under Penal Law § 155, regardless of whether replacement ultimately occurs. Reg 194 covers disclosure, not trust-account integrity.
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