South Florida Arbitration & Litigation Lawyer Blog
Stock Broker Fraud and Negligent Supervision FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
January, 2012:
Hantz Financial Services, Inc. (CRD #46047, Southfield, Michigan) and Bruce Frederick Coleman (CRD #50684, Registered Principal, Ann Arbor, Michigan) submitted a Letter of Acceptance, Waiver and Consent in which the firm and Coleman were censured and fined $10,000, jointly and severally. The firm was fined an additional $50,000. Without admitting or denying the findings, the firm and Coleman consented to the described sanctions and to the entry of findings that the firm failed to establish and maintain an adequate supervisory system and WSPs to ensure that it immediately recorded on the firm’s books and records checks its customers mailed to the firm. The findings stated that because the firm failed to enforce that particular WSP, these deficiencies were exploited by a registered representative who embezzled approximately $2.6 million from customers and contributed to the firm’s failure to detect his scheme; the representative exploited the firm’s check handling procedures by taking control of customer checks totaling approximately $850,000 and depositing the customer funds into his own bank accounts, without the checks being logged in the firm’s tracking system. The findings also stated that the firm, by and through Coleman, its CCO, failed to establish and maintain adequate WSPs addressing the circumstances under which it would contact and communicate with a customer following receipt of a complaint.
The findings also included that the firm’s lack of adequate WSPs describing circumstances under which complaining customers would be contacted contributed to its failure to discover the representative’s scheme after a customer sent a written complaint to a variable annuity company, which was subsequently forwarded to the firm, asserting that recent distributions from variable annuity policies were unauthorized and seeking reinstatement of the funds. FINRA found that the complaint also alleged that the customer had sent the firm money and was unable to ascertain what assets were purchased with the money. FINRA also found that although the firm interviewed the representative, the customer was never contacted and the representative’s illegal activities continued for approximately another 10 months. After the representative’s death, the firm undertook a forensic audit of the representative’s transactions, which led to identification of numerous customers whose funds had been embezzled; the results were shared with FINRA and were instrumental in exposing how the funds were embezzled and the extent of the customer harm. In addition, FINRA determined that the firm voluntarily provided more than $2 million in restitution to customers. (FINRA Case #2008012747901).