According to a recent report by the Financial Industry Regulatory Authority (FINRA), Royal Alliance, an independent national broker-dealer, was fined $400,000 for failure to supervise properly and in the process missed to catch two imprisoned brokers who made away with over $3.8 million from four customer accounts.
FINRA Complaint Against Royal Alliance Brokers
FINRA stated in their Letter of Acceptance, Waiver & Consent (AWC) that from the year 2009 to 2017, a broker based in New Jersey transferred $1.4 million in over 60 transactions. The transactions were made from the account of a purportedly disabled widow to two accounts, one belonging to the broker’s limited liability company and the other to a law firm. Royal Alliance did nothing to stop the transfers even though the company’s address was precisely similar to that of the broker’s office and the existing prohibition against 3rd party transfers.
FINRA further pointed out that the broker allegedly forged requests for 3rd party checks from the widow and another client without confirming where the checks were being sent to. Third-party checks are strictly unauthorized.
Second FINRA Case
In the second case, FINRA alleged that between June 2013 and June 2017, another broker based in Massachusetts stole over $2.3 million from two clients by forging 65 3rd party wire transfer requests from the customers’ accounts to another bank account the broker controlled. According to FINRA reports, when a cashiering group staff member asked for an explanation for the discrepancy, the Massachusetts broker claimed that the customer had signed documents using different names. No further investigation was done on the matter leading to a loss of the client’s money. The former broker was also charged for falsifying papers after questions were raised about his account getting checks bearing his home address.
The AWC report did not mention the names of the brokers but claimed that both brokers pled guilty and were banned from participating in the securities industry in the future. It is also reported that the Royal Alliance discharged the Massachusetts broker, Kimberly Pitts, who, in 2017, was given an 87 months prison sentence and three years supervised release. Royal Alliance also discharged the New Jersey broker, Gary Basralian, who is currently serving a prison sentence of 70 months after he pleaded guilty to fraud charges. In the AWC, FINRA states that Royal Alliance failed to compensate the clients who lost money to the two criminal brokers.
How Are Investments Recovered From Losses Due to Fraud?
If a broker steals from a client’s account or performs a transaction that contravenes securities laws, the firm the broker works for is fully liable for any investment losses the affected clients incur.
Any brokerage firm that fails to monitor its employees’ activities closely is liable for losses suffered by clients due to its negligence and lack of proper supervision. For more information about the laws governing securities, you can check FINRA’s website. You can also consult a reliable national securities fraud, arbitration, and investment protection attorney in your area to understand how securities laws are designed to protect your investment.