Stockbroker Theft
Sometimes financial crime is simple: Stockbrokers just steal money. They may remove it from a customer’s account or divert funds from a customer’s account into their own account for their own benefit. Though such theft is often accomplished through old fashioned means – forgery, for example – it is not always easy to detect.
Brokers may resort to forging customer’s checks or transfer instructions, or they may actually remove money from a customer’s account by check or wire transfer and then place it into an account that they control. Broker theft is also called conversion.
Others examples of theft:
- A broker borrows money from a customer and never pays it back;
- A broker recommends a non-existent security and pockets the purchase price;
- The customer receives a mystery check from a brokerage account and calls the broker to inquire. The broker claims it was a mistake and asks the customer to send the check directly back to the broker, who then deposits it into another account upon receipt.
The sums can be substantial. For example, the Financial Industry Regulatory Authority, or FINRA, settled charges in January 2012 against a broker who wrongfully converted $187,000 in customer funds to her personal use.
According to FINRA disciplinary records, over a year-long period ending in early 2010, this broker forged the signature of a customer on IRA distribution request forms to authorize the transfer of funds to an outside bank account that she controlled. The broker, who worked for LPL Financial Corp. at the time, eventually reimbursed the victim of her theft and was barred from the industry.
Theft and the misappropriation of customer funds appeared to be on the rise in 2011. FINRA’s disciplinary-action database revealed at least 50 disciplinary actions involving misappropriation or conversion of funds in 2011, up from about 20 in 2005.
In August 2011, FINRA announced a $500,000 fine paid by Citigroup for its failure to supervise a registered broker in its Palo Alto, Calif., office. Over an eight-year period this broker misappropriated about $850,000 from at least 22 Citigroup customers, including elderly and infirm customers.
According to FINRA, this broker “used her knowledge of Citigroup’s lax supervisory practices at the branch to take advantage of some of the firm’s most vulnerable customers, including the elderly. Citigroup had reason to know what she was doing and could have stopped her.”
Such conduct is not new, and brokerage firms that discover their brokers are stealing money or obtaining unauthorized loans from customers often seek to conceal these acts from regulators and customers for fear that they may have to pay the customers back, or that they are legally responsible for the conduct of the brokers.
In one case, a broker forged about 20 illegal transfers through which he stole hundreds of thousands of dollars from customers. His firm told regulators that the broker was fired because of “signature discrepancies.”
While brokers who steal money are often judgment proof or on their way to jail, the brokerage firms who employ them are liable for the acts of their registered representatives, even though they did not “authorize” them to outright steal from their customers. Their liability arises from their unequivocal duty “to establish, maintain and enforce an adequate supervisory system to detect and prevent misconduct.”
If you have been the victim of stockbroker theft or misappropriation, you should consult with a lawyer and seek to recover what was stolen.
The practice of Nicholas J. Guiliano, Esquire, and The Guiliano Law Firm, P.C., is limited to the representation of investors in FINRA securities arbitration claims against stockbrokers, brokerage firms, and other financial professionals for fraud in connection with the sale of securities, the sale of unsuitable securities, breach of fiduciary duty, and the failure to supervise. We offer our services on a contingent-fee basis, meaning there is no cost unless the firm is able to make a recovery.
For more information or a free evaluation of your claim contact us toll-free at (877) SEC-ATTY or visit us at www.stockbrokerfraud.com.
