On December 27, 2018, John G. Schmidt was charged in a 128 count indictment by the Montgomery County, Ohio Prosecuting Attorney. According to Investment News, the Prosecutor alleges that Schmidt, while employed a financial advisor for Wells Fargo Advisors, stole money from clients while operating a Ponzi scheme. The Prosecutor further alleges that Schmidt created fictitious account statements in order to hide his fraud from his investor clients.
According to Schmidt’s publicly available FINRA BrokerCheck Report, he was employed with Wells Fargo Advisors Financial from 2006 to October 24, 2017 when he was terminated for cause “after allegations of unauthorized money movement between clients, and after the Firm was notified of an allegation of the existence of inaccurate statements which appear not to have been generated or approved by the Firm.” Only days after Schmidt was fired by Wells Fargo, the customer complaints began rolling in alleging he had stolen money. Some of those cases have been settled but a few are still pending. On September 25, 2018, the Securities and Exchange Commission filed a civil complaint against Schmidt outlining the details of this Ponzi scheme.
Schmidt’s Ponzi scheme is why the SEC and FINRA have mandated for generations now that brokerage firms adequately supervise their brokers. In 1989 the SEC clearly outlined a brokerage firm’s supervisory responsibilities:
“Effective supervision by broker-dealers is a critical element in the regulatory scheme and its importance has increased as firms have grown in size. As broker-dealers expand their activities…, there must be a concomitant expansion of their supervisory procedures to insure regulatory compliance and sound internal controls. Apart from adopting effective procedures broker-dealers must provide effective staffing, sufficient resources and a system of follow up and review to determine that any responsibility to supervise delegated to compliance officers, branch managers and other personnel is being diligently exercised.” See, In the Matter of Mabon, Nugent & Co., Release No. 27301, Admin. Proc. File No. 3-6207 (Sep. 27, 1989).
The NASD and then FINRA have created regulatory rules including FINRA Rule 3110 which requires all broker dealers to “establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations.”
By failing to deter and detect Schmidt’s Ponzi scheme, Wells Fargo could be liable for losses sustained by his victims. If you or someone you know was victimized by Schmidt’s scam, please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free consultation with an attorney. We are a contingency fee law firm meaning if we do not recover money for you, our legal services are free.