Bad Broker Costs Large RIA/BD $3.6 Million for Compliance and Supervisory Failures
The SEC fined a large broker-dealer/investment adviser $3.6 Million because its inadequate compliance and supervisory program failed to stop a broker from stealing from clients. The broker, currently facing criminal charges, exploited a weakness in the firm’s control systems that allowed third party disbursements up to $100,000 per day based on representations that the broker received oral instructions. According to the SEC, the broker misappropriated $7 Million from four advisory accounts. Although the firm did have policies and procedures that included ad hoc manual supervisory reviews, the firm did not require authorization letters, call back clients to verify instructions, or record calls.
OUR TAKE: A motivated miscreant will find the weaknesses in your compliance and supervisory system. To avoid this type of theft, a firm should prohibit any third party money movement without the review of a supervisor or compli-pro.