5 fraud and discrimination stories you've missed in wealth management

Wells Fargo’s appeal on Feb. 23 against a Georgia court ruling that it had manipulated the dispute resolution system in favor of brokers over customers has “opened a Pandora’s box of negative consequences” for the bank and its overseers, FINRA and the SEC.

This uncompromising assessment from Scott Silver, securities lawyer and co-chair of the American Association for Justice, does not make for pleasant reading in a case in which FINRA, which regulates the brokerage industry, and the SEC, which oversees FINRA, have both come under fire with Wells Fargo.

With a remit to protect investors and the integrity of the market, the two Wall Street watchdogs are now facing pointed questions from Sen. Elizabeth Warren and Rep. Katie Porter on the Georgia case and FINRA’s arbitration process.

Read more: Wells Fargo’s appeal of bombshell ‘fraud’ ruling in FINRA case casts harsh spotlight on regulators

In 62 unauthorized transfers over almost six years, UBS advisor German Nino misappropriated $5.8 million from a client account for “gifts and travel and living expenses for women with whom he had romantic relationships,” according to an SEC complaint.

But the salacious endpoint of Nino’s alleged fraud should not overshadow the reality of systemic failings that allowed him to start his grand scheme in the first place.

“It’s troubling because with all of the compliance we have in the U.S. and all of the regulatory framework, how does this stuff go undetected?” said Bill Singer, a securities attorney and blogger on Wall Street compliance, of a case that fits a pattern of similar cases with advisors also escaping detection for years.

Read more: Ex-UBS broker spent a family’s millions on his lovers: SEC

In a case of claim and counterclaim that likely raised the anxieties and eyebrows of potential investors, Raymond James won a commanding arbitration victory against three former brokers requesting $36 million in deferred compensation, damages, fees and other costs.

Lynn Faust, Michael Faust and Joe King filed their suit in July 2019 due to the firm’s “fraudulent ‘internal investigation’ activities” that resulted in their “unwarranted and pretextual termination” for UIT sales. Raymond James countered by accusing the advisors of unjust enrichment and denied the allegations.

But while Raymond James dismissed the advisors in 2018 “due to concerns relating to the nature of advisor’s UIT activity,” a year later the firm itself was the subject of an SEC case alleging excess commission charges in certain UIT sales and other violations, and was obliged to settle for $15 million.

Read more: Raymond James wins in arbitration against ex-brokers seeking $36M