Ex-California Broker Stole Millions from Trust Clients
Many people establish a living trust to manage their assets. A trust is an estate planning device where a person transfers their assets to a trustee. The trustee can be the same person who established the trust or it can be someone else. Whoever the trustee is, he or she must manage the trust assets for the benefit of the persons named in the trust.
In many cases, the trust beneficiary is an elderly or infirm person who is no longer capable of managing their own financial affairs. It is therefore incumbent upon the trustee to act in that person’s best interests. But some trustees ignore their fiduciary responsibility and use trust assets to engage in illegal activities, including securities fraud.
SEC v. Thornes
For example, the U.S. Securities and Exchange Commission recently announced an administrative settlement with a former California stockbroker who stole millions from two trust accounts. John T. Thornes owned his own brokerage and investment advisory firm until 2013. Among Thornes’ clients was a trust established for the benefit of an 80-year-old woman suffering from dementia. When the woman could no longer manage the trust herself, Thornes succeeded her as trustee, giving him full control over the trust’s assets.
Over a two-year period, the SEC said Thornes “abused his position” as trustee by transferring nearly $1.7 million from the trust to a personal friend, Christopher L. Burnell. Although the trust’s assets were supposed to be used only for the beneficiary’s health, maintenance and support, the SEC said Thornes decided to pay off Burnell’s tax and gambling debts instead. Burnell had no relation to the beneficiary and neither he nor Thornes ever repaid the trust for the assets they misappropriated. In addition, the SEC said Thornes earned over $60,000 in fees and commissions in selling trust assets for the benefit of Burnell. Altogether, Thornes’ actions reduced the value of the trust from over $2 million to just under $385,000.
Thornes similarly abused his position as representative for a second trust. This trust was established through the will of a family friend who wanted to fund college scholarships for deserving students. Thornes’ mother was the actual trustee, but the SEC said she allowed her son to “make all decisions” regarding the trust’s assets, as she lacked experience in finance and trust management.
As with the first trust, Thornes used this second trust to finance the personal expenses of Burnell, whose total haul came to nearly $3 million. Thornes also transferred over $1.2 million to a second man, Kyle W. Larick. Thornes managed to deplete the second trust’s assets to the point where only “minimal funds” were used to accomplish the trust’s actual purpose of providing educational scholarships.
In July 2013, the Financial Industry Regulatory Authority expelled Thornes and his firm. This past July, a federal judge in California issued a permanent injunction against Thornes. And in this most recent order, the SEC barred Thornes from working as a broker, dealer or investment adviser, and ordered him to pay back the money he stole from the two trusts.
Has Someone Abused Your Trust?
While this is an extreme case of trust abuse, it does emphasize the importance of a trustee’s responsibility, especially when dealing with securities. If you are the beneficiary of a trust who has suffered losses through such misconduct, it is important you seek the assistance of a qualified Florida securities fraud attorney. Contact Gregory Tendrich, P.A., in Boca Raton to speak with someone right away.