230 South Broad

Many people say “my broker robbed me”, but increasingly and unfortunately, many people actually mean it.

There appears to be a growing trend in the misappropriation or conversion of customer funds by stockbrokers from the outright forgery of customer checks or transfers to personal loans and the “opportunity” to invest in non-existent businesses often created by the wayward stockbroker.

The FINRA Disciplinary Action Database

The disciplinary action database of Financial Industry Regulatory Authority, reveals at least 50 disciplinary actions involving misappropriation or conversion of funds in the first three quarters of this year, up from about 20 during the same period in 2005.

For example, on August 9, FINRA announced a $500,000 fine paid by Citigroup Global Markets Inc. for its failure to supervise, Tamara Moon, a registered sales assistant in its Palo Alto, Calif., office. Citigroup consented to the entry of these finding by FINRA, but neither admitted nor denied the charges as a term of the settlement.

Over an eight-year period, Ms. Moon, while a stockbroker for Citigroup misappropriated of $850,000 from at least 22 Citigroup customers, including elderly and infirm customers, over a period of eight years. Citigroup fired Moon in April 2008, for among other things, causing the firm to keep inaccurate books and records but Moon was not barred by FINRA until more than a year later in May 2009.

In connection with the $500,000 fine against Citigroup, FINRA found that Citigroup failed to investigate “red flags” concerning Ms. Moon that should have alerted the company to her allegedly illegal activity. According to FINRA, Ms. Moon “used her knowledge of Citigroup’s lax supervisory practices at the branch to take advantage of some of the firm’s most vulnerable customers, including the elderly. Citigroup had reason to know what she was doing and could have stopped her.”

A Rise In Broker Misconduct

Such conduct is not new, and it appears to be growing. Also, brokerage firms that discover that their registered representatives are stealing money or obtaining unauthorized loans from their customers, generally have sought to conceal these acts from regulators and for fear that they may have to pay these customers back, and are legally responsible for their conduct, are generally reluctant to even notify other customers. For example, in one case, where a broker had forged approximately twenty (20) illegal transfers, stealing hundreds of thousands of dollars from public customers, the brokerage firm told regulators that the stockbroker was fired because of “signature discrepancies.”

Recently also Ameriprise Financial Services Inc. was fined $50,000 by FINRA for the failure to adequately supervise and prevent misconduct by one of its brokers, William Ray Collins, Jr., who forged the signatures of ten customers on 34 documents that he submitted to Ameriprise.

According to FINRA, Ameriprise surveillance became aware of potential forgeries by Collins in December 2005 but waited nearly two and a half years until August 2008, before it fired Collins and notified securities regulators.

Similarly, in February of this year, John Edward Mullins, a former stockbroker with Morgan Stanley was found to have converted and misused the funds of a charitable foundation. Mullins was barred for life, meanwhile his wife, who was also registered was only fined $20,000.

In May of last year, Citigroup was fined $1.5 million by FINRA for failing to supervise its stockbroker, Mark A. Singer for improperly transferring more than $60 million held in trust funds meant to maintain cemeteries or burial plots. The broker allegedly transferred funds to third parties with whom he was colluding, in some instances disguising the transfers as fictitious investments made on behalf of the cemeteries.

In this case, FINRA found that a Citigroup branch manager had recruited Singer from another broker-dealer, where the scheme originated. FINRA’s investigation showed that over a period of more than two years, Citigroup failed to reasonably supervise the handling of these accounts by inadequately responding to a succession of “red flags” — failures that permitted the scheme to continue undetected until October 2006.

The red flag events began in September 2004, shortly after Singer began working at Citigroup. After receipt of this information, however, FINRA found that Citigroup’s follow-up was “superficial and incomplete.”

Finally, in May 2006, Citigroup received a whistle-blower letter — from the principal of a company acting as a third-party trustee for the cemeteries — alleging misconduct by

Singer in connection with the handling of the cemetery trusts. Among other things, this letter alleged Singer’s involvement with unauthorized transfers of cemetery trust funds, as well as Singer’s use of his personal email address to conduct business with the whistleblower, in an apparent attempt to bypass the firm’s email monitoring system. Despite the seriousness of these allegations, Citigroup failed to enhance supervision of Singer or restrict his activities.

Singer, who also appears to be under several criminal indictments, and faces the better part of this century in jail, of course failed to “cooperate” with FINRA’s investigation and was barred from the securities business. However, according to his Public Disclosure Records, it appears that Citigroup, now Morgan Stanley Smith Barney, is vigorously defending claims brought by its customers relating to Singer’s conduct.

While the person stealing your money is often judgment proof, or on their way to jail, their employer, brokerage firms are liable for the acts of their registered representatives, even though they did not “authorize” them to outright steal from their customers. Their liability arises from their unequivocal duty “to establish, maintain and enforce an adequate supervisory system to detect and prevent misconduct.”

If you have been the victim of stockbroker theft or misappropriation, you should consult with a lawyer and seek to recover what was stolen.

Guiliano Law Group

If you have been the victim of securities fraud you should consult with an attorney. The practice of Nicholas J. Guiliano, Esq., 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.