HD Vest, a CPA-centric independent broker-dealer, agreed to pay $225,000 to settle SEC charges of supervisory failure, following the barring of a former independent representative who allegedly swindled his elderly clients of over $300,000.
According to the regulator, HD Vest failed to put in place measures to monitor representatives and protect costumers, even after at least one specific incident of alleged fraud was discovered.
During his time with HD Vest, Lewis J. Hunter convinced two elderly clients to invest $250,000 in a Canadian bank in 2010 and 2011, providing fabricated guaranteed investment certificates and using their money instead to pay for personal expenses, according to charges filed by the SEC. Hunter also defrauded a third client of $54,000, the SEC claims.
Once the alleged fraud came to light, the SEC barred Hunter from the industry and fined him over $460,000. Hunter could not be reached for comment.
Continuing its investigation, the SEC announced Wednesday it had found fault with the Irving, Texas-based brokerage for violating customer protection rules upon failing "to adequately supervise registered representatives who misappropriated customer funds."
Specifically, the SEC said in a release that HD Vest "failed to have proper policies and procedures in place to monitor its representatives’ outside business activities, and as a result some representatives used their outside businesses to defraud brokerage customers in such ways as transferring or depositing customer brokerage funds into their outside business accounts."
Additionally, the SEC said, HD Vest did not move to protect customers after the incident.
"HD Vest was required to make certain calculations and, if necessary, deposit funds into a reserve account for the benefit of customers who were harmed by the representatives’ misconduct. HD Vest neither made the calculations nor maintained a reserve account," according to the SEC statement.
When reached for comment, an HD Vest spokesman maintained that the firm had aided in the investigation. “
HD Vest has fully cooperated with the SEC with respect to addressing the issues that have led to this settlement, including identifying and self-reporting to regulatory authorities the issues related to the independent advisor named in the settlement, whose affiliation with our firm was terminated in 2011," said Joseph Kuo, a spokesman for HD Vest. "Beyond this, and as a matter of policy, we do not publicly discuss regulatory and legal matters.”
David Woodcock, director of the SEC’s regional office in Fort Worth, Texas, acknowledged in a release that smaller brokerage firms like HD Vest "do face greater challenges in supervising their representatives in numerous small branch offices spread across the country, but that doesn’t excuse the firm from establishing adequate policies and procedures to address those challenges.”
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