Stoltmann Law Offices is investigating on behalf of defrauded investors claims made by the Securities and Exchange Commission that Lester W. “Chad” Burroughs, a financial advisor for Lincoln Planning of Torrington, Connecticut, misappropriated client money for personal use. Burroughs was also a registered investment advisor through Capital Analysts. According to the SEC complaint filed on December 9, 2019 in the Federal District Court, District of Connecticut, Burroughs ran his scheme from November 2012 through at least January 2019. It was a simple scam, one that is all too common in fact. Burroughs offered victims an investment called a “Guaranteed Interest Contract”, also known as a “GIC”. The terms of these “GICs” offered by Burroughs included interest at either 4% or 7% per year for the term of the contract. Once again, and these scams are becoming so much more common, 4% to 7% per year is not an exorbitant return people typically think of when being sold a fraudulent investment. In fact, 4% per year barely pays more than the average rate of inflation.
In furtherance of his scheme to defraud his clients, Burroughs created fake account statements, and according to the SEC, the reason he sold GICs to subsequent investors was to pay off previous investors – the hallmark of a Ponzi scheme. According to his FINRA BrokerCheck Report, Burroughs is no stranger to customers complaints. When he was hired by Lincoln Planning, Burroughs had fourteen customer complaints disclosed on his CRD Report, which is a statistically enormous number. Burroughs also paid a fine to the Insurance Commission of the State of Connecticut in 2003 for violations. This history of complaints and compliance issues put Lincoln Planning on notice when they hired Burroughs in 2012 that he was a compliance risk. Standard operating procedure at a brokerage firm like Lincoln Planning under these circumstances would be to place the advisor on “heightened supervision”. These heightened supervision programs regularly require increased compliance surveillance like random, unannounced on-sight branch audits and direct communications with clients without the knowledge of the advisor. Certainly, had Lincoln Planning put the necessary resources into supervising Burroughs, he would not have so brazenly created and sold these phony GICs to clients.
This “heightened supervision” requirement for brokers like Burroughs with a history of customer complaints has been part of the regulatory lexicon required by FINRA for almost 20 years. In NTM 03-49, then NASD (now FINRA) explained to brokerage firms like Lincoln Planning that brokers with a history of customer complaints should be more closely monitored because they are a compliance risk. NASD provided some statistics in this notice which were pretty shocking when one considers the number of complaints Burroughs had on his record prior to even being hired. According to this notice, only 3.3% of all registered brokers had at least one customer complaint; 0.71% had two; 0.22% had three, and only 0.09% were subject to at least four customer complaints. The Fourteen complaints on Burroughs record put him in extremely rare company. Lincoln Planning had an obligation to adequately supervise Burroughs and the firm clearly failed to do that. As such, Lincoln Planning can be liable for the damages caused by Burroughs to his clients.