SEC Fines Texas Brokerage After Agent Stole $300,000 From Elderly Clients
Even if you deal with a reputable securities broker, there may still be unscrupulous agents of that broker who will take advantage of clients. Federal law requires all registered brokers to establish procedures for supervising their representatives. A broker who fails to do so can be held liable for a rogue agent’s illegal actions.
In the Matter of H.D. Vest Investment Securities, Inc.
Here is a recent example. On March 4, the U.S. Securities and Exchange Commission issued an order against a Texas-based broker that failed to supervise a former agent who stole more than $300,000 from the firm’s clients. Both the broker and the company agreed to settle the SEC’s charges without litigation.
Lewis J. Hunter was a broker affiliated with H.D. Vest Investment Securities in Irving, Texas. Both Hunter and H.D. Vest were registered brokers subject to SEC regulations. Beginning in late 2010, Hunter solicited funds from three elderly clients, purportedly to invest in banks. Hunter told one elderly couple he would invest $250,000 of their money in a Canadian bank that promised monthly interest payments of 15% for two years. He promised another client he would invest $54,000 in another bank.
In reality, Hunter never invested any of the clients’ funds. He simply misappropriated the money for his personal use (including the repayment of a personal loan from one of the victims). Hunter admitted his crimes to the SEC and agreed to a 2013 order barring him from working in the securities industry. Hunter also agreed to pay over $315,000 in restitution to his victims, plus an additional civil penalty of $150,000 to the SEC.
But the SEC did not stop with Hunter. The Commission also held H.D. Vest liable for its failure to supervise Hunter. In its March 4 order against the brokerage, the SEC said H.D. Vest’s policies and practices “were not reasonably designed to prevent or detect the type of fraudulent behavior conducted by Hunter.” The SEC specifically cited H.D. Vest’s practice of allowing its brokers—who are independent contractors—to transfer funds from client accounts to third-party entities controlled by the broker. In Hunter’s case, he told his victims they could only invest in the banks outside of H.D. Vest. Hunter then transferred money to an entity he controlled without H.D. Vest’s knowledge.
The SEC said H.D. Vest should have implemented policies to monitor the “outside business activities” of its representatives. Had it done so, Hunter’s fraudulent transfers could have been detected beforehand. H.D. Vest also failed to follow basic customer protection requirements, including failing to maintain proper reserves of customer funds and not keeping records of all of its representatives’ emails.
Like Hunter, H.D. Vest agreed to SEC sanctions without litigation. The SEC fined the company $225,000. H.D. Vest further agreed to hire an independent consultant to review its practices and policies. The consultant will issue recommendations within five months, which H.D. Vest must then adopt.
Investors should always be suspicious when their broker advises them to invest in an outside business activity. Hunter was able to convince his victims he was offering a special opportunity available only outside their H.D. Vest account. Such tactics are commonplace in securities fraud.
If you have been the victim of an unscrupulous broker and have lost money as a result, it is important you seek independent advice from an experienced Florida securities fraud attorney. Contact Gregory Tendrich, P.A., if you would like to speak with someone immediately.