Transformer draining voltage from arduino trhough LM317t

... The LM317t is draining it's 5v down to 3-4v still, whether It's in parallel with the 5v regulator or pulling from the 5v regulator.
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Hmm. How is the LM317 affecting the 5V??

I think the LM317 should be powered from the external supply, not connected to 5V...

Let us know.