Ten months before ex-Raymond James & Associates broker Fred Stow confessed to fraud, a branch manager expressed concerns about him that fell into a black hole, according to the Securities and Exchange Commission.
In a Sept. 22
Court filings from the case and new revelations from the SEC settlement offer a rare level of detail into a giant wealth manager's response to one of the all-too-frequent advisor fraud cases
The case revolves around "a really vulnerable individual and his IRA account," said Bill Singer, a a lawyer and former regulator who writes the "
"We're talking about a firm that really likes to run television ads about how it wants to look out for people who are retiring," he added. "If you can't catch something like this involving a 90-year-old guy with an IRA account over four years, then what good is your compliance department?"
Raymond James, which declined to comment on the case, settled it without admitting or denying the findings of the SEC's investigation. The firm fired Stow in May 2019 based on the family of the late client alleging that he was "misappropriating funds from customer accounts,"
Stow pleaded guilty in August 2020 to three counts of wire fraud and one count each of securities fraud and identity theft. He's currently serving a prison term in a high-security facility in Pine Knot, Kentucky, with an expected release date in October 2025, according to court and inmate records. The lawyers who represented him in the criminal case didn't respond to a request for comment on the SEC case against Raymond James.
"Borne of financial stress from caring for an elderly uncle, and later compounded by his own financial strain, Stow stole over $900,000 from two longtime clients," they wrote in a court filing last year. "That terrible mistake has led to equally terrible effects, including the understandable outrage of the clients and their families; Stow's severe depression, culminating in two suicide attempts and the attendant heartache of his loved ones; and a litany of legal actions."
The legal proceedings began with his firing from Raymond James in May 2019 — the year after the manager of a Nashville-area branch in Cool Springs, Tennessee, first looked into possible problems with the account of the 98-year-old, a retired airline pilot, according to the SEC. At that time, Stow had already been stealing from the victim, who lived alone with 24-hour caretakers, for about three and a half years since October 2015, investigators say.
The manager visited the client's home in June 2018 after noticing the "extremely high" amounts of money being transferred out of his IRA, the settlement states. The supervisor then spoke with Stow about the client and Stow's declining level of business and notified the top compliance and executive leadership for the region, according to investigators.
The managers met roughly a week later about possible problems with the account and Stow's financial situation. A $361,000 loan that the firm had made to Stow was in arrears, and he was only taking home about $1,200 per month because the firm had seized "almost his entire payout for the last six months, which still was insufficient to cover the minimum loan payments," according to the settlement. The managers referred the matter to the firm's Senior and at-Risk Clients group, which it had launched two years earlier to respond to potential cases of financial exploitation.
That's where the investigation went haywire, according to the SEC. The analyst conducting the review examined whether someone outside the firm might be exploiting the client, not whether a Raymond James broker might be doing so, investigators say. The team's investigation never extended to interviewing the customer, the branch manager or even Stow, the settlement states. The analyst concluded in an email about a week later that the team had determined it didn't need to pursue any further actions in the matter, according to the SEC. A few months later, the firm put Stow on a "performance improvement plan" after his production fell below its quota.
"From July 2018 until [the] customer's passing in March 2019, Stow continued to misappropriate money from [the] customer every month, using the same scheme as before," the document states. "Because there was no change in circumstances to warrant an additional inquiry beyond what had already been completed, Raymond James did not conduct any further meaningful supervisory inquiry specifically directed at Stow's potential theft."
In fact, the fraudulent wires into Stow's own accounts continued until he confessed to the scheme in May 2019 "after being questioned repeatedly by the executor of [the] customer's estate about the missing money," according to the SEC. In the first regulatory disclosure of Stow's 40-year career at firms that included Merrill Lynch, Wells Fargo and Baird as well, Raymond James terminated Stow that month.
Besides handing out the $500,000 penalty to Raymond James, the SEC gave the firm credit for a series of "remedial" changes to its investigatory group for protecting vulnerable clients. The firm bulked up training for the team and supervisory officials like branch managers, added more documentation of its reviews available to executives and gave them a more direct role in the investigations.
With the SEC case behind it, Raymond James now awaits more than $1.1 million in restitution that the judge in Stow's criminal case ordered him to pay the firm in restitution, according to court records. The district judge in Nashville's federal court, Aleta Trauger, ruled that Stow will enroll in a prison financial management program and pay Raymond James no less than 10% of his gross monthly earnings upon release until the money is repaid.
