Chicago-based Stoltmann Law Offices has represented investors who’ve suffered investment losses from “rogue” brokers. Without question, securities firms are legally obligated to protect your money from brokers who run afoul of the law. Yet these “rogue” brokers often get away with theft right under the noses of their employers.
The case of Hector May, a former broker with Securities America, is a case in point. May, who was employed by Securities America from 1994 to 2018, pled guilty to stealing some $8 million from his clients in 2018, according to Investment News. May was sentenced to 13 years in prison and ordered to pay $8.4 million in restitution in 2019. Was May’s firm responsible for protecting his clients? In charging Securities America for “allegedly failing to safeguard clients” from May, the U.S. Securities and Exchange Commission (SEC) fined Securities America $1.75 million. Securities America Advisors neither admitted to nor denied the SEC’s findings.
The SEC reported that Securities America had knowledge that May wasn’t doing right by his clients. “The SEC alleged that one Securities America surveillance system generated multiple alerts for potentially suspicious withdrawals from client accounts, but its analysts failed to carry out the prescribed processes for investigating those alerts,” Investment News reported. “The commission also alleged that the firm permitted disbursements without the required signatures, and another group failed to contact clients to verify that they had initiated disbursement requests.”
In plain English, Securities America had a system set up to monitor and police rogue brokers – as all securities firms are required to have in place — but apparently wasn’t paying close attention or acting upon what was going on with May’s accounts. “The SEC’s charges allege that three broker-dealer units were responsible for identifying potential theft client assets, but they failed to implement required policies and procedures.” According to May’s BrokerCheck summary, there were eight reports in his record that either indicated customer disputes or regulatory actions dating back to 1992. SA also allegedly failed to acknowledge to clients that May was withdrawing money from several client accounts or that he was breaking the firm’s own rules. “The commission also alleged that the firm permitted disbursements without the required signatures, and another group failed to contact clients to verify that they had initiated disbursement requests. As a result of these failures, May misappropriated, or stole, about $8 million from the accounts of at least 15 Securities America clients,” according to the SEC.
Of course, every securities and advisory firm is mandated by law to have a policing system that can spot and halt broker abuses and theft. They must report any problems to clients and regulators and can be held liable if they don’t. As a “self-regulating” industry, the securities industry is its own watchdog, which is a poor structure for preventing and stopping rogue brokers from pilfering client accounts.
Firms are legally required by FINRA to monitor and supervise what their brokers are selling – their investments must be vetted and authorized by the firms – and have an obligation to investors to fully reveal true risk and return information about the vehicles sold. Investors can file FINRA arbitration complaints if these rules are broken.
If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!