Unfortunately, there are many financial advisors that engage in criminal activity under the auspices of providing legitimate financial advice. Broker theft has become more pronounced in accounts owned by elderly clients. The most common example of broker theft occurs when a financial advisor withdraws money from a client’s account for his or her own personal use. Often, these withdrawals are accompanied by false promises to repay the money owed at a point in the future. In other instances, Financial Advisors can create new “bill pay” accounts that automatically withdraw funds to pay unauthorized expenses of the broker.
FINRA Rules that Apply to Broker Theft
FINRA Rule 2150 specifically addresses theft and conversion in a customer account, stating “no member or person associated with a member shall make improper use of a customer’s securities or funds.” This rule includes any “guarantee” that brokers make to customers in relation to losses incurred in a brokerage account.
In addition, FINRA Rule 3240 strictly prohibits a financial advisor from borrowing money from a client absent from unique circumstances, such as a familial relationship between the Financial Advisor and the client. There is also an exception if the client is a financial institution regularly engaged in the business of lending. The reason for this prohibition is clear—borrowing money from clients creates an immediate conflict of interest and can potentially lead to theft or conversion of client assets.
An Example of Broker Theft or “Conversion”
Recently, the Wolper Law Firm handled a large theft case on behalf of a client with a large family trust with sub-accounts for each family member. The Financial Advisor’s assistant agreed to assist the clients in managing their payment of bills and personal expenses. Over time, the Financial Advisor’s assistant began stealing money from each sub-account to pay for her own vacations, bills, and personal expenses. The assistant even renovated her home with money stolen from our clients’ accounts. This lasted for several years before the broker theft was discovered. Ultimately, the Wolper Law Firm was able to recover the entire principal amount in the broker theft case, plus interest and attorneys’ fees for the victimized clients.
What Should You Do To Monitor Your Accounts
It is critically important to review your account statements and confirmations each month to monitor unusual checking, deposit, or withdrawal history. Moreover, most brokerages offer online access so that customers can review their account activity in real-time. Clients should take advantage of this feature and customize account notifications to detect unauthorized withdrawals.
If you believe that you or a loved one has been the victim of broker theft, please contact the Wolper Law Firm at 800.931.8452 for a free consultation and case evaluation.