Securities America Fined $1.75 Million By FINRA
Did Securities America Miss the Red Flags of a Ponzi Scheme?
According to the Securities and Exchange Commission, Securities America may have failed to appropriately supervise its financial advisors, which could have led to losses for investors. In a recent Cease-and-Desist Order, the SEC fined Securities America $1.75 million over their alleged supervisory failures.
Securities America Complaints: Allegations of Financial Advisor Misconduct
Investors have reason to worry about Securities America’s oversight. On December 13, 2018, a U.S. District judge sentenced former Securities America representative Hector May to 13 years in prison after he pled guilty to fraud. According to Manhattan U.S. Attorney Geoffrey Berman, Hector May and his co-conspirator stole $11 million from his investors. In addition to keeping money for himself, May also allegedly used the money to continue his scheme, which Inspector Philip Bartlett said had “all the markings of a classic Ponzi scheme.” In a Ponzi scheme, investor funds pay off earlier investors instead of generating returns. According to his BrokerCheck record, May settled a dispute with an investor alleging a Ponzi-like scheme for $3,950,908. Securities America fired May for alleged “misappropriation of client assets.”
Did Securities America Fail to Follow FINRA Requirements?
If Securities America followed existing requirements for broker supervision, Hector May might have been caught sooner. Regulators require brokerages to “maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities law.” FINRA Rule 3110 also requires that each registered broker have an assigned supervisor. Supervisory procedures should be reasonably designed to catch any irregularities or misconduct.
Securities America News: Did They Fail to Follow Their Own Policies?
Aside from supervising their representatives, advisory firms must comply with the Bank Secrecy Act and implement an Anti-Money Laundering program. Securities America’s Financial Investigation Unit generated anti-money laundering alerts for suspicious disbursements from investor accounts. Alerts flagged disbursements based on their size and frequency. Despite multiple alerts identifying red flags, analysts allegedly failed to conduct the required analysis.
According to the SEC, between November 2014 and March 2018, the Securities America’s Trade Monitor system issued 55 alerts for suspicious disbursements. The SEC alleges that staff did not analyze any of these alerts, nor did they escalate the alerts for an Anti-Money Laundering investigation.
The SEC alleges that the cashiering staff failed to review outgoing investor cash-outs for possible misappropriation. Signed forms authorized cashiers to make multiple disbursements to the same account for a period of 12 months. After the 12 months, cashiering staff should have received new signed forms, but staff allegedly failed to implement this policy.
Failure to Review Outgoing Wire Requests of Over $50,000
Securities America required a review of outgoing wire requests of $50,000 or more. The firm required staff to contact the investor’s advisor to confirm the investor had made the request. Securities America also required staff to confirm the client’s full name along with other identifying information. According to the SEC, the staff failed to contact some of Hector May’s clients. Allegedly, 20 outgoing wires met the threshold for a client call, but staff only made eleven calls. In at least five cases, investors allegedly could not identify the amount or the destination of the wire, and yet the staff still approved the disbursements.
What Happens Next?
According to the SEC Order, Securities America has undertaken to retain the services of an independent consultant to conduct a comprehensive review of Securities America’s supervisory and compliance policies.
If you believe you have suffered losses because of Securities America’s failed oversight, you should get in touch with Kurta Law. Call 212-658-1502 or call email@example.com.