Despite the changes brought on by the COVID-19 pandemic, FINRA stayed busy this summer cracking down on ill-fated brokers. In fact, more than 130 disciplinary action cases were reported throughout the summer months alone.
During this time, eleven of the cases were brought against brokerage firms and individuals who allegedly defrauded their trusting, vulnerable clients. In this article, we spotlight three of those incidents.
Broker Steals $200,000 to Pay-off Personal Home Costs
A broker from Brooklyn, NY was barred from association with any FINRA member in all capacities and ordered to pay $200,000, plus interest, in restitution for defrauding an elderly client. The broker was sanctioned after it was found that the client’s $200,000 check, which was meant to be deposited into the client’s brokerage account, was actually deposited into the broker’s own personal bank account. The broker then misused the funds to pay the down payment and closing costs for the purchase of a new home. Additionally, FINRA found that the broker reported false and misleading information to both the client and the broker’s member firm regarding what happened to the $200,000 check. (FINRA Case #2019061947501)
Broker Bared for Naming Himself as Power of Attorney for Vulnerable Client
A California broker was sanctioned and barred from association with any FINRA member in all capacities after findings showed that the broker took advantage of an elderly retiree who was exhibiting early signs of dementia. After meeting the client, the broker entered into a power of attorney and was named as attorney-in-fact with broad powers over the client’s financial affairs. The broker also convinced the client to appoint him as co-trustee over her assets, in violation of his member firm’s written supervisory procedures (WSPs).
The findings stated that in the trust agreement, the broker had been named as the beneficiary of 75 percent of the individual’s estate. On top of that, the broker had made multiple attempts to open an account for the individual’s trust at a bank that was affiliated with his firm and by which he was also employed. The broker repeatedly lied to the firm and bank personnel about his relationship with the woman by falsely claiming that she was a close family friend. The firm reported the matter to state government authorities, who subsequently appointed a guardian for the woman and brought legal action to revoke the power of attorney and trust agreement. (FINRA Case #2018058642601)
Convinced Client Names Broker’s Wife as Financial Beneficiary
In Illinois, a broker was named as a respondent in a FINRA complaint alleging that the broker was engaged in an unethical course of conduct by taking advantage of a relationship with a customer to benefit financially from the customer’s policies and accounts. The complaint alleges that the broker notified his firm that his customer, who was 63 years old at the time, intended to name him as a beneficiary of the customer’s life insurance policy. After being informed by his firm that he could not be named a beneficiary of the customer’s policy without a firm-approved exception, the broker convinced the customer to designate his wife as a beneficiary on multiple financial products that he sold to the customer.
The broker additionally convinced the customer to open a joint bank account with him, with right of survivorship. The customer funded the account with a deposit of nearly $77,000 and periodically deposited additional funds into the account while the broker never deposited any funds. The broker did not disclose to the firm that his wife was named beneficiary of the customer’s financial products or that he shared a bank account with the customer, thus impeding the firm from supervising his relationship with the customer and addressing conflicts of interest. After the customer’s death, the broker obtained approximately $146,000 as a result of the beneficiary designations and his right of survivorship on the shared bank account. (FINRA Case #2018058117101)
To read more of FINRA’s disciplinary action cases from the year, click here.