When you hear about a massive broker fraud case about many ripped-off investors, it’s a great reminder to consider your own situation or financial advisor.
To put it differently, how well do you know your advisor or agent? In December alone, brokerage firms agreed (without admitting or denying guilt) to an aggregate $2.4 million in fines — and more than half of the sum arose from inadequate supervision of brokers who caused investor harm, according to the newest rundown of enforcement activities from the Financial Industry Regulatory Authority (FINRA).
Commonly called FINRA, it’s the Self-regulatory organization for approximately 630,000 brokers — a few of whom are also registered with the Securities and Exchange Commission as investment advisor — and the companies that use them.
Each year, an estimated 50 percent of people are victims of fraud, according to a study from the Stanford Center on Longevity and the FINRA Investor Education Foundation.
While that includes all sorts of scams and schemes, 16.5 percent of people surveyed for the research reported to be a victim of investment fraud.
Recently the SEC ordered Woodbridge Group of Companies, a property investment firm, and its former owner to pay $1 billion in penalties and repayments for ill-gotten gains linked to an alleged scheme involving 8,400 retail investors.
Yet individual cases of alleged wrongdoing do not always involve substantial dollar numbers, and lots of the accusations, investigations and settled cases garner little attention.
In addition to financial companies getting sanctioned for an absence of effective oversight, brokers themselves can also be fined, suspended from working with brokerages for a certain length of time or banned entirely.
In 1 case included in the most recent monthly FINRA roundup, a broker was barred from the industry for an assortment of alleged misdeeds, such as using client funds for his own purposes and trying to conceal it.
Per FINRA’s Findings, Kyle Patrick Harrington of San Diego switched about $20,000 in funds from a customer and engaged in undisclosed private securities transactions with a lot of other people, along with making false statements and providing false documents to his employer and also to FINRA.
Especially, FINRA’s Findings state this in mid-2012, Harrington moved $19,874 of a client’s funds in an account he owned and had his assistant falsify documents to facilitate the transfer.
When authorities started questioning him 2016 about the event, he asked the customer to sign a letter stating she’d paid him to stay at his vacation home in 2012, FINRA documents reveal. (She didn’t agree.) And although he told FINRA the money was because the customer rented his holiday home, he afterward explained it had been for investment management fees.
The client told FINRA that she thought the money was transferred to her individual retirement accounts.
In November 2016, an internal inspection in Harrington’s then-employer, National Securities Corp., revealed the suspicious move and he was fired, FINRA documents show.
Separately, FINRA took Harrington to work for not revealing his private dealings in securities, which is required by broker-dealers. Those transactions led to an arbitration claim from one investor that resulted in National Securities Corp. paying $105,000 to resolve, based on FINRA documents.
In addition to now being barred in the business, Harrington was ordered to pay $105,000 to refund National Securities Corp for the claim and to pay $190,974 in disgorgement (ill-gotten profits ) into FINRA.
Before all of this, Harrington already had resigned from another brokerage in 2011 after the firm discovered he had failed to disclose a personal bankruptcy, FINRA documents reveal. Regulators took actions over that omission by suspending him from working with any brokerage for 30 days in 2012.
And, after National Securities fired him in November 2016, he had been hired by Aurora Capital in Bridgehampton, New York, before last year.
Victims of fraud, according to a study by the Stanford Center on Longevity and the FINRA Investor Education Foundation. While that includes a variety of scams and schemes, 16.5 percent of individuals surveyed for the study reported to be a victim of fraud.
Just lately, the SEC ordered Woodbridge Group of Businesses, A real estate investment company, and its former owner to pay $1 billion in payments and penalties for ill-gotten gains related to an alleged plot between 8,400 retail investors.
Yet individual cases Of alleged wrongdoing don’t always involve huge dollar numbers, and many of the offenses, offenses and settled instances garner little attention.
Along with fiscal Companies getting sanctioned for lack of effective oversight, brokers themselves also can be fined, suspended by working with brokerages for a particular period, or banned entirely.
Investment Fraud can catastrophic’ for banks’ clients:
In one case contained in the latest monthly FINRA Roundup, a broker was barred from the industry for a variety of alleged misdeeds, such as using customer funds for his own purposes and trying to hide it.
Per FINRA’s Findings, Kyle Patrick Harrington of San Diego converted about $20,000 in funds from 1 client and engaged in undisclosed private securities trades with a lot of different men and women, along with making false statements and supplying false documents to his employer and also to FINRA.
Specifically, FINRA’s Findings say that in mid-2012, Harrington transferred $19,874 of a customer’s funds into an account that he possessed and had his assistant falsify documents to ease the transfer.
When regulators started Questioning him in 2016 concerning the event, he requested the client to sign a letter stating she had paid him to remain at his vacation home in 2012, FINRA documents reveal. (She did not agree.) And although he first told FINRA the money was because the client leased his holiday house, he later said it had been for investment management charges.
The customer told FINRA that she believed the money was transferred to her individual retirement accounts.
In November 2016, an Internal inspection at Harrington’s then-employer, National Securities Corp., revealed that the questionable transfer and he was fired, FINRA documents reveal.
Separately, FINRA took Harrington to work for not revealing his personal dealings in securities, which is necessary by broker-dealers. Those transactions led to a mediation claim from one investor that resulted in National paying 105,000 to resolve, based on FINRA documents.
In addition to now being Barred from the business, Harrington was ordered to pay $105,000 to refund National for the claim and to pay $190,974 in disgorgement (ill-gotten profits ) to FINRA.
Before all of this, Harrington already had resigned from another brokerage in 2011 after the company found he had failed to disclose a personal bankruptcy, FINRA documents reveal. Regulators took action over that omission by suspending him from working with almost any broker for 30 days in 2012.
And, after National fired him in November 2016he then was hired by Aurora Capital at Bridgehampton, New York, until last year.
Bernie Madoff’s sufferers, 10 years later
“As a firm, where we think it’s appropriate, we Believe in second chances, and in the majority of cases that doctrine works for all sides,” Jeff Margolis, Aurora Capital president, wrote in an email to CNBC. He explained Harrington was put under improved supervision and clients were contacted to assess their satisfaction.
“Eventually it became Clear that although we had no major difficulties with him throughout his tenure with us, the issues raised by the regulators prior to his joining this firm were likely to be insurmountable and he and we mutually agreed he would leave the company,” Margolis said, adding that Harrington resigned voluntarily.
Harrington, for his part, told CNBC that he disagrees with FINRA’s findings, including that he defended himself in the FINRA situation rather than selecting an attorney due to the possible high cost.
“They couldn’t be more wrong,” Harrington said. “But as soon as they spend a number of resources on finding out all about you, they’re likely to find something — at least something in their minds.”
Nevertheless, he has moved on from the industry and is now conducting a youth sports academy, he said.
In a separate instance on FINRA’s monthly rundown, broker was justified for not exposing to his company a string of private securities transactions that resulted in two clients losing the majority of the invested money.
Without admitting or Denying guilt, Seth Andrew Nannini of Charlotte, North Carolina, consented to the sanctions, including a four-month suspension from functioning as a broker and $7,500 in restitution to a client.
FINRA documents allege That between 2011 and 2012, Nannini solicited two customers of his company — Capital Investment Group in Raleigh — to invest a total of $290,000 in a biotech company. The findings state he moved among their clients’ funds to an IRA held elsewhere, which made it more challenging for the company to know more about the investment.
He allegedly spent $1,500 of his own money from the venture without disclosing it, which also violates FINRA rules.
The biotech firm went bankrupt before it could repay investors. One of Nannini’s customers received only $788 of their first $70,000 he invested as part of the firm’s bankruptcy proceedings, FINRA documents state. Another customer was able to get $72,500 after filing an arbitration claim and settling with the firm, Nannini and also additional parties, the records show.
Andy Penry, an attorney Together with the Raleigh law firm of Penry Riemann who represented Nannini from the FINRA proceedings, said of the agreement reached, “I believe both my customer and FINRA are content with the outcome.”
Penry also said that Nannini intends to stay in business if he is capable, after his suspension lifts in May. Nannini remains recorded on FINRA’s BrokerCheck as employed by Capital Investment Group.
Tom Barron has Bachelors Degree from Michigan State, MBA from University of Miami and worked as equities trader for Bank of America. When he is covering investment news, he is spending time with his family. Hobbies include golf and travel.