FINRA recently fined the Royal Alliance Associates, an independent broker-dealer, $400,000 for failing to properly supervise two of its brokers who independently stole 3.8 million from its clients. The brokers who found guilty of directing checks and wire transfers from their customers’ accounts two bank accounts belonging to companies they had created.
In FINRA’s Letter of Acceptance, Waiver, and Consent (AWC), it is alleged that Royal Alliance failed to enforce the required procedures and respond to red flags indicating potential acts of fraud while processing the check request and wire transfers used in perpetrating the thefts. The letter did not mention the names of the brokers but Royal Alliance has already compensated the affected customers.
Royal Alliance Claim: The New Jersey Theft
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According to FINRA reports, one of the culprits is a New Jersey-based broker who stole money from two of his customers in the period starting October 2009 to July 2017. A bulk of the stolen money was taken from the account of a disabled New Hampshire widow.
The New Jersey broker is alleged to have used forged wire transfer request forms to make over 60 wire transfers was over $1.3 million from client accounts managed by Royal Alliance two bank accounts of an LLC company he controlled. The company’s address on documents that were made available to the public what’s the same as the broker’s office address.
FINRA claimed that Royal Alliance’s cashiering group treated they said transfers as first-party transactions when they were actually third-party transfers and by processing the transactions violated the broker-dealer’s prohibition of third-party wire transfers.
The other wire transfers in question were sent to the same account number of the LLC created and controlled by the broker instead of the client’s account. FINRA states that the erroneous transfer should have raised a red flag which Royal Alliance did not identify.
In March 2018, the New Jersey broker was banned from participating in the securities industry after he refused to provide testimony about the case before FINRA. The broker pleaded guilty to the fraud charges and was given a 70 months prison sentence.
Royal Alliance Claim: The Massachusetts Theft
The other case involved a different broker in Massachusetts who stole money from her clients in the period between June 2013 and June 2017. The registered representative used forged wire transfer request forms to steal over $2 million from one customer via 65 third-party wire transfers to a bank account belonging to a company he controlled.
The wire request forms showed that the recipient bank account was the same as the Massachusetts broker’s company name, which was a red flag that the royal Alliance cashiering group failed to act upon. According to the FINRA claim, a member of the Royal Alliance’s cashiering group noticed the discrepancy between signatures all the wire request forms and account records in 2013 but claimed that the customer usually signed her name differently. Royal Alliance accepted the discrepancy without confirming from the customer or taking steps to ensure that the signature was valid.
The Massachusetts broker also stole from another couple $325,000 using the same fraudulent means. Royal Alliance took measures to remedy the deficiencies and settled with two state securities regulators connected to the cases. It was fined $190,000 by the New Hampshire Bureau of Securities Regulation while the New Jersey Bureau of Securities slapped it with a fine of $250,000.