Misappropriation of funds includes not only theft but also the misuse of funds from one agreed upon purpose to another purpose. For example, if I give my stockbroker or financial advisor a check for $10,000 with the understanding that these funds are to be deposited into my brokerage account, but instead deposits these funds in their own account, this is misappropriation.
“Misappropriation” means essentially the same thing as “theft.” In many of these cases, the stockbroker is ultimately convicted or pleads guilty to a crime, and as part of their sentence, and for relied under the sentencing guidelines, they pay or agree to pay restitution. The government is also very good at seizing assets or collecting the ill-gotten gain from many a criminal enterprises for distribution or restitution to victims. However, most of the time, if not always, the monies seized by the regulators or the authorities is seldom sufficient to make their victims whole. Court ordered restitution to be made by the incarcerated or even the released felon are no more propitious, and even over many decades, victims will generally never recover their actual damages.
Investors who have suffered losses as the result of the misappropriation of their funds by their stockbroker, or even by third parties, may have claims against the financial institution or custodian of these funds under the “Customer Protection Rule,” SEC Rule 15c3-3. While it is debatable whether there is a private right of action for the violation of SEC Rule 15c3-3, investors are with class of persons this Rule was designed to protect.
FINRA Rule 3120 regarding the establishment of a Supervisory Control System at a minimum is the industry standard of case and specifically requires all firms to establish, maintain and enforce written supervisory control policies and procedures that, among other things, include procedures that are reasonably designed to review and monitor the transmittal of funds (e.g., wires or checks) or securities:
- from customer accounts to third-party accounts (i.e., a transmittal that would result in a change of beneficial ownership);
- from customer accounts to outside entities (e.g., banks, investment companies);
- from customer accounts to locations other than a customer’s primary residence (e.g., post office box, “in care of” accounts, alternate address); and
- between customers and registered representatives (including the hand-delivery of checks).
Rule 3120 (Supervisory Control System) and Incorporated NYSE Rule 401, See also, Regulatory Notice 09-64 (Nov. 2009) (“FINRA firms must have and enforce policies and procedures governing the withdrawal or transmittal of funds or assets from customer accounts, including instructions froman investment adviser or other third party purporting to act on behalf of the customer”); FINRA Regulatory Notice 12-05 (Jan. 2012)(“firms must have adequate policies and procedures to review and monitor all disbursements it makes from customers’ accounts, including but not limited to third-party accounts, outside entities or an address other than the customer’s primary address”); FINRA Department of Enforcement v. Ameriprise, Letter of Acceptance Waiver & Consent, No. 2010-02515730 (March 1, 2013)(Ameriprise fined $750,000 for Failing to Supervise and have reasonable supervisory systems in place to monitor wire transfer requests and the transmittal of customer funds to third-party accounts).
Be vigilant. Review your customer statements. If you suddenly stop receiving customer statements, take action. If your stockbroker sends you “consolidated” or anything less than official customer statements from a registered securities broker-dealer or clearing firm, investigate, take action. Many instances of misappropriation come not from stockbrokers outright pocketing your funds, but by investing these funds in fictitious promissory notes, hedge funds, alternative investments, or some other entity either under the control of the stockbroker, or from which the stockbroker is being paid substantial undisclosed fees.
However the misappropriations happen, they can often be discovered by a thorough examination of financial records and transaction records. Talk to a lawyer if you think you might have had funds taken by a broker or financial advisor.
Contact Us For a Confidential Evaluation of Your Claim
If your stockbroker or financial advisor took your money or misappropriated it, you should consult with a lawyer right away. The Guiliano Law Group represents victims of misappropriation against stockbrokers and financial advisors. If you were a victim of theft or misappropriation of funds, contact our law offices today at (877) SEC-ATTY for a free, no obligation, consultation. All inquires are confidential, and we offer our services on purely a contingent fee basis, meaning we do not get paid unless we make a recovery for you.