Northwestern Mutual Investment Services a securities broker dealer headquartered in Milwaukee Wisconsin has been censured and fined $350,000.00 by Financial Industry Regulatory Authority (FINRA) based upon findings that Northwestern Mutual failed to supervise a stockbroker who converted customer funds. Letter of Acceptance Waiver and Consent No. 2017054642101 (Apr. 7, 2020).
According to the AWC, five Northwestern Mutual customers’ account funds which totaled $473,496.00 had been converted by a stockbroker named Representative X. The AWC stated that twenty-three transfers and distributions had been executed to move those customers’ funds from their variable annuities to his own bank account. The AWC stated that customers’ signatures had been forged by Representative X on distribution requests and then those requests had been submitted to Northwestern Mutual. These distribution requests forms falsely conveyed that the customers’ funds would be directed to their bank accounts.
The AWC stated that fake blank checks had also been prepared and submitted by Representative X. The checks conveyed customers’ names and their addresses, but the account numbers matched the account of Representative X where his commissions were deposited. The AWC stated that there was no point in which Northwestern Mutual tried to ensure that the customers were in control of the bank accounts which funds had been directed to.
The AWC stated that some of the customers who fell victim to Representative X’s theft were told that their funds would be invested in a foreign currency fund which did not actually exist. FINRA indicated that phony documentation was created by Representative X to show customers’ investments in the purported foreign currency fund.
The AWC also revealed that unauthorized transfers had been effected by Representative X from annuities which two Northwestern Mutual customers owned. Representative X submitted documents for distributions while also providing fake blank checks. Northwestern Mutual failed to ensure that customers were in control of the bank accounts receiving funds from customers’ annuities.
FINRA stated that Northwestern Mutual did not have any adequate supervision system for purposes of reviewing transfers of customer funds to outside entities and third party accounts. The system used by Northwestern Mutual also neglected to incorporate the use of exception reports or other mechanisms to review patterns of distributions and transfers to the same third party account. This led to the securities broker dealer’s failure to uncover the twenty-three transfers to the bank account that Representative X controlled.
Northwestern Mutual only detected Representative X’s misconduct after a customer complained. FINRA found that the securities broker dealer violated FINRA Rules 3110 and 2010 for its supervisory failures.
