Alleged supervisory failures, linked to the misdeeds of a broker in the suburbs of Nashville, Tennessee, who is currently in prison, have earned a censure and a fine of $500K from the Securities and Exchange Commission (SEC) for St. Petersburg, Florida-based Raymond James & Associates.
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The case is about a branch manager flagging off concerns regarding withdrawals in the account of an elderly client, that was apparently disregarded by the compliance department of the firm, as revealed by the SEC. This let the theft of money from the account, perpetrated by a Cool Springs, Tennessee, broker, go undetected, and continue unabated, eventually adding up to $901,500 being stolen from the account.
The theft happened over several transactions between 2015 and 2019.
June 2018, when he took charge of the office in Cool Springs, was when the manager, not named in the order, highlighted his concerns about withdrawals from this elderly customer’s account, escalating it to the Senior and At-Risk Clients (SARC) group of Raymond James.
Created by the firm in 2017 to “primarily respond to potential external threats of financial exploitation, e.g., from family members or caregivers,” SARC failed to take any action in the case, such as contacting the customer, seemingly because identification of internal threats was not a mandate given to it.
Apart from Frederick M. Stow being placed on a performance improvement plan, no other action resulted from the internal complaint, and the investigation was considered complete by SARC. According to the SEC, the apparent “lack of clear communication” about SARC’s scope of the investigation could be the reason.
In another case of misappropriation, Stow was able to take out $22,400 from the account of one more elderly client, in 2019. This was after the 98-year-old client, the recipient of his attention thus far had passed away earlier that year in March.
Record of Broker Stow
According to his BrokerCheck record, Stow was discharged by the firm for “misappropriating funds from a client’s account” in May 2019. In his career of over 40 years in the industry, while he had spent the last five with Raymond James, his first ten were with Merrill Lynch in New York.
In October 2020, Stow pled guilty to aggravated identity theft, wire and securities fraud, and aggravated identity theft in federal court where he was sentenced to serve 60 months in the Pine Knot, Kentucky federal prison. He has also been barred from the industry by the SEC.
This is not the first time a broking firm is being held responsible for the misdeeds of its brokers. Based on the detailed order it has issued, an outside lawyer, former senior counsel in the SEC’s Division of Enforcement, and member and chair of Washington, D.C. law firm Dickinson Wright’s government investigations and securities enforcement unit Jacob Frenkel believes that the SEC intends to send a stern message to industry players that ‘diligent supervision of their representatives is a ‘reasonable expectation’ that they (SEC) have.
Processes related to SARC training, reporting, and consultations have been enhanced by Raymond James after the discovery of this fraud. Results of reviews, consultations, notes sent to supervisors and other departments involved in compliance, are now documented by the unit.
A request for comment was not returned by his criminal defense lawyer.
While Raymond James agreed to the order without admittance or denial of findings, according to the SEC, their spokesperson declines to comment on the issue.