Securities Arbitration Investment Fraud Lawyers » Failure To Supervise » Cape Securities Stockbroker Suspended for Supervisory Failures

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Michael A. Lovett, a compliance officer with Cape Securities, Inc., was suspended from association in a principal capacity with any Financial Industry Regulatory Authority (FINRA) member firm and fined $5,000 after consenting to findings that he failed to adequately supervise the establishment of the firm’s supervisory system to detect and prevent conversion of customer funds. Letter of Acceptance, Waiver, and Consent, No. 2013035211001 (May 5, 2015).
According to the AWC, from February-September of 2012, a Stockbrokercalled PE had converted for his own use and benefit from brokerage accounts of the firm’s seven customers. The AWC indicated that PE would submit twenty-one separate wire transfer requests which totaled $690,152.90 to the firm, appearing to be on behalf of customers. The customers reportedly never authorized any of the transfers.
FINRA found that as Cape’s Chief Compliance Officer, Lovett was responsible for establishing Cape’s supervisory system – and Lovett failed in this regard. NASD Rule 3012(a) requires a review and monitoring of customer accounts to accounts of third-parties. FINRA also found that the firm had no supervision procedures designed to assist in detecting and preventing conversion by registered reps using bogus fraudulent wire instructions.
The AWC also indicated that after one of the registered representatives admitted to Lovett that a signature on a wire transfer request PE submitted was forged, Lovett made no additional inquiries from PE’s office. FINRA found that Lovett also did not place any restrictions on PE’s ability to submit wires. PE’s additional wires to Lovett amounted to $107,000. Since FINRA found that Lovett’s performance of supervising was inadequate especially concerning the response to PE’s admissions of the forged documents (Lovett reportedly never reviewed PE’s earlier wires, contact CG’s family, or further due diligence on later transfers from PE), he violated FINRA Rules 2010, and NASD Rules 3010(a), 3010(b) and 3012(a)(2)(B).
Securities brokerage firms have a duty to supervise their brokers and the sales practices of their brokers, and to review customer statements for, among other things, evidence of suitability, unauthorized trading, or excessive activity. FINRA Conduct Rule 3010 specifically provides that each member shall establish and maintain a system to supervise the activities of each Stockbrokerand associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with the Rules of this Association. Final responsibility for proper supervision shall rest with the member.
Public records via FINRA’s BrokerCheck reveal that Michael A. Lovett has been subject to prior regulatory mishaps. Lovett was fined $15,000 and suspended after he consented to findings that he violated Article V, Section 2 and 3 of the NASD By-Laws and NASD Rules 2110, 3070(b), and 3070(c) as a result of failing to timely report to NASD and failing to keep current applications for registered persons of the firm for whom customer complaints have been filed. In Matter Number E6010134 (Jan, 16, 2013).
Additionally, Lovett was fined $10,000 and suspended after he consented to findings that he violated NASD Rules 2110, 2711(i) and 2010 as a result of failing to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws, regulations and NASD rules concerning research reports. In Matter Number E0605000301 (Oct. 25, 2007). Lovett was also fined $4,000 by the Securities Commissioner of South Carolina for the failure to provide a timely response to a request for information.
Guiliano Law Group
If you have been the victim of securities fraud and you have a complaint, you should consult with an attorney. The practice of Nicholas J. Guiliano, Esquire, and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.