September 28, 2022

Broker Settles SEC Charges for Supervision Failures over Representative's Financial Misconduct

A brokerage firm settled SEC charges for supervisory failures related to a registered representative's misappropriation of an elderly client's funds.

The SEC found that a representative forged wire transfer authorization letters and misappropriated an elderly customer's funds by routing retirement funds into the representative's personal bank accounts. According to the Order, prior to discovering the fraud, the firm flagged suspicious activity in the customer's accounts - including "extremely high" account withdrawals, yet the only action taken was to put the representative on a performance improvement plan. No further investigation was conducted due to a miscommunication regarding the scope of the firm's Senior-and-at-Risk-Clients group ("SARC"), a misconduct investigatory committee. The SEC determined that the firm's supervisory policies lacked clear guidance on SARC's processes or the scope of its reviews in assisting supervisors. Further, the SEC said that the firm did not inform interested parties about SARC's involvement in misconduct review.

The SEC determined that the firm failed to supervise its registered representatives within the meaning of Exchange Act Section 15(b)(4)(E) ("Registration and regulation of brokers and dealers") to identify and prevent securities laws violations. To settle the charges, the firm agreed to (i) a censure, (ii) remedial steps and (iii) a civil monetary penalty of $500,000.

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