SEC Charges Brokerage Firm with Violating Supervisory and Customer Protection Rules

The SEC charged the brokerage firm H.D. Vest with violating customer protection rules after failing to adequately supervise registered representatives who misappropriated customer funds.

According to the SEC order, H.D. Vest, which has more than 4,500 registered representatives working typically as independent contractors who also operate tax businesses outside of their securities businesses, failed to have proper policies and procedures in place to monitor its representatives' outside business activities. The SEC found that, as a result of this failure, some representatives used their outside businesses to defraud brokerage customers in ways such as transferring or depositing customer brokerage funds into their outside business accounts.

The SEC also found that in the wake of the wrongdoing, H.D. Vest did not follow customer protection rules that require firms to protect customer funds and securities in the possession of broker-dealers. Specifically, H.D. Vest failed to make certain calculations and to deposit funds into a reserve account for the benefit of customers who were harmed by the representatives' misconduct.

See: SEC Order.See also: H.D. Vest No-Action Relief Regarding Waiver of Disqualification under Rule 506(d)(2)(ii) of Regulation D.