• February 16, 2024
• Morgan Stanley

Investors entrust their financial advisors with their savings and future aspirations, with the goal of achieving diverse financial objectives such as their children’s education and financial freedom, comfortable retirement, and wealth management. But in some cases, financial advisors have been known to take advantage of their clients and make off with their accounts and potential profits.

Unfortunately, it can be challenging to detect financial theft for long periods of time. The complex world of investment banking coupled with clients’ trust in those who appear to understand the market can make it difficult for some investors to spot when such theft is taking place. These kinds of factors contributed to the case of Jesus Rodriguez, a formerly registered SEC financial advisor, who was able to embezzle over $3.475 million from his clients and their brokerage accounts.

Who is Jesus Rodriguez?

Jesus Rodriguez is a financial advisor facing accusations of misleading and deceptive conduct from at least 10 clients. He has held Series 7 and 66 licenses from the Financial Industry Regulatory Authority (FINRA) – the largest regulatory agency for financial advisors in the United States. He entered the securities industry in 2004, and previously worked with Merrill Lynch Pierce Fenner & Smith Inc.; Citigroup Global Markets Inc.; and Morgan Stanley. He is a Mexican citizen who lives in El Paso, Texas.

SEC vs. Jesus Rodriguez: Case Background

According to publicly available records released by the Securities and Exchange Commission (SEC), in January 2024, Jesus Rodriguez was charged with fraud for misappropriating more than $3.475 million from ten brokerage account holders and advisory clients.

The SEC’s complaint alleges that from 2014 to 2021, while employed as a registered representative and investment adviser representative in the El Paso office of a large financial institution, Rodriguez initiated more than 250 fraudulent and unauthorized disbursements from the accounts of ten of his brokerage customers and advisory clients. Rodriguez allegedly recruited many of his clients and brokerage customers from Mexico, and convinced them to invest in the El Paso brokerage firm where he worked. He then allegedly used the funds entrusted to him by those clients for personal expenses including to pay credit card bills, buy automobiles, and give money to his family members.

The SEC alleges that in many instances Rodriguez funded his misappropriations by incurring a debt for the account holder that was secured by the securities portfolios in their brokerage and/or advisory accounts. In other instances, Rodriguez allegedly misappropriated the proceeds of securities sales. The SEC further alleges that Rodriguez engaged in deceptive conduct to further conceal his misappropriation scheme, including by fabricating authorizations for the transfers and by lying to his employer when asked about certain transactions involving the affected accounts. For a copy of the SEC litigation press release, click here.

What is Misappropriation of Funds?

Misappropriation of funds is a broad term that stretches beyond simple misconduct. It applies to a wide range of financial wrongdoing, such as when someone has a fiduciary relationship with another person by virtue of managing their finances.

Financial advisors misappropriate funds when they misuse their clients’ investments. This may involve serious mishandling of their clients’ accounts, stealing profits from their investments, incurring inappropriate debts using their clients’ names, or using their clients’ money to pay off their own debts. In other words, misappropriation of funds involves the unauthorized use of money entrusted to someone with a responsibility to handle those funds appropriately.

Misappropriation of Funds vs. Embezzlement

Think of the “embezzlement” and “misappropriation of funds” as squares and rectangles – closely related, but not quite interchangeable as terms. This is because embezzlement usually involves someone with a legal responsibility to safeguard funds or property, who misuses their power for their own personal gain. Misappropriation of funds, on the other hand, only refers to the misuse of money, not property. Both these financial crimes differ from ordinary theft in the sense that they involve assets that the thief or con artist was legally given access to.

Consider the case of Bradley Holts, a financial advisor who allegedly misappropriated a total of $186,382 from three elderly customers. He told them that he would invest their money in securities of mutual funds while in reality, he misused their money to pay for his personal expenses, including clothing, tanning salons, adult and dating websites, as well as a divorce lawyer.

Meanwhile, in September 2023, a customer alleged that financial advisor Ian Geeves stole and misappropriated her funds from 2013-2023. The total damage amounted to $400,000.

How Did Rodriguez Misappropriate Funds?

According to Parts II and III of the SEC complaint, Rodriguez misappropriated funds using three different techniques:

Unauthorized Wire Transfers:

Even though none of his clients authorized him to make certain wire transfers on their behalf, Rodriguez falsified both the paperwork for the transfers as well as the reasons behind them. He orchestrated more than 70 wire transactions that diverted his clients’ funds into accounts owned by himself, his ex-wife, and his mother.

In order to complete these transactions, he forged written authorization letters and signatures to approve unusual amounts or destinations. Some of the reasons he gave were “equipment for business purchase”, “loan balance payoff”, “professional services”, or “property taxes”. In fact, he misappropriated more than $1.7 million to spend on his credit card bills, spousal support, and car payments.

Unauthorized Cash Journal Transfers:

From March 2016 to June 2021, Rodriguez transferred at least $1.3 million from his investors’ accounts for falsified reasons like “stock purchase”, “vacation rental”, “estate planning and taxes”, “capital contribution” and “professional services.” In reality, many of these payments were going directly to the bank accounts controlled by his family members.

Unauthorized ACH Transfers:

Rodriguez also utilized credit card companies’ infrastructure to defraud his clients and misappropriate their funds. On several occasions totaling over $400,000 in funds, he falsely represented to different credit card companies that he was authorized to withdraw funds and make payments via the ACH system for his clients’ accounts. He then used investors’ money to make payments on his own credit cards.

Why Did Rodriguez Misappropriate Funds?

Rodriguez misappropriated funds for many of the same reasons that other fraud artists run their schemes: to fund his own lifestyle. He spent much of the money on expensive cars like a Lamborghini, several BMWs, a Land Cruiser, a Land Rover, and a Toyota Yaris that he raced on a private track in Austin, Texas. He also gave $325,000 to his family members. Much of the money he stole went towards paying off credit card debts that fueled his opulent lifestyle.

What Does Breach of Fiduciary Duty Mean?

A fiduciary duty is a legal obligation to act in good faith to serve the interests of the assets, principal, or beneficiary that an agent protects. Many fiduciaries are legal or banking professionals who handle estates, trusts, brokerage accounts, and other financial interests. Breach of fiduciary duty occurs whenever a fiduciary agent fails to act in the best interests of their beneficiary or protected assets. Examples include negligence, concealed conflicts of interest, insider trading, failure to distribute assets, inappropriate disclosures, lack of record keeping, and more.

How Did Rodriguez Breach His Fiduciary Duties?

A fiduciary is legally bound to act in the best interests of their clients. Rodriguez, by allegedly misappropriating investor funds to fuel his own lifestyle, violated his clients’ trust.

How Did Rodriguez Conceal Investor Fraud?

Rodriguez established a relationship of trust with his investors, many of whom did not realize for years that they were being defrauded. He allegedly targeted clients who were less likely to notice their money was missing. According to the complaint, he falsified official documents, scanned his clients’ signatures without their consent, and affirmed to industry professionals that he was confident in his clients’ abilities to pay off the debts and loans he had incurred without their knowledge.

When investors dealing with Rodriguez became suspicious about record-keeping errors, missing funds, or spotted unauthorized transactions in their accounts, he took measures to hide his alleged fraudulent activities. For example, when one investor inquired about some missing funds, Rodriguez told her it was an accounting error and moved $16,460 from another client’s account into hers to obscure his trail.

What Are the Claims Against Jesus Rodriguez?

The SEC’s complaint, filed in the U.S. District Court for the Western District of Texas, charges Rodriguez with violations of the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC seeks permanent injunctive relief, the disgorgement of allegedly ill-gotten gains plus prejudgment interest, and a civil penalty.

Jesus Rodriguez Investor Fraud: What’s Next?

The investigation is still ongoing, but Jesus Rodriguez is detained and delisted from FINRA BrokerCheck. His file also details his past conduct and employment history. His former employer Morgan Stanley has since settled with 10 out of his 11 clients for a total of over $4.7 million.

If you think you might be a victim of investment fraud, don’t wait to talk to an investor fraud attorney. With the help of a knowledgeable lawyer, you may be able to recover what has been misappropriated as well as win additional damages. At Wolper Law Firm, we are available for a consultation to help investors who have been harmed by investment and securities fraud.

Is Misappropriation of Funds a Crime?

Yes. Misappropriation of funds can lead to both civil as well as criminal penalties, depending on the specifics of the case. Misappropriation of funds can be considered either a misdemeanor or a felony, depending on the number of offenses as well as the state in which you reside. On a federal level, there may be additional penalties and consequences as well.

What is the Penalty for Misappropriation of Funds?

While the answer lies in the specifics of your case, some examples of breach of fiduciary duty penalties, when the crime involves embezzlement, include:

• A prison sentence of anywhere from one to 10 years, depending on whether you have been charged with a state misdemeanor or a felony
• Restitution
• Probation
• Loss of license and employment
• Fines and additional damages

What is Investor Fraud?

Investor fraud happens in different ways. However, not all scammers embezzle funds to support their lifestyles; some skim commissions or mishandle their clients’ accounts. Other kinds of investor fraud are solicitations and “hard sells”, while some may seem like legitimate business opportunities that then go south, but have been crafted to deceive investors all along.

Investment fraud red flags include:

• not being able to reach your broker,
• not being able to review statements,
• confusing or contradictory information being offered about the status of investments or accounts,
• high-pressure sales tactics or “no risk” claims, and
• other unprofessional conduct.

If you are seeing a spike in your transactions, unauthorized charges, deceptive behavior, or any other issues that give you pause, consult with an investment fraud lawyer to discuss your options.

How Does Wolper Law Firm Help Investors Recover Investment Losses?

FINRA regulations mandate that a customer’s written authorization is taken before a broker-dealer carries out transactions in the customer’s account. In addition, the broker-dealer’s member firm needs to approve such authorization. These measures are intended to protect the customer. Discretionary trading allows the broker-dealer to unilaterally decide to buy or sell securities at any price and not have to check with the client first. Exercising discretion without authorization can be costly to investors, and broker-dealers and their member firms, too.

In addition, to the extent a financial advisor converts client assets during the course and scope of his employment and/or registration with the brokerage firm, that brokerage firm may be held liable for any attendant losses.

The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis. We are client-focused, which means we take the time to understand each of our clients’ unique goals and challenges. We will use our industry experience, legal know-how, and dedication to help determine liability and seek maximum damages on your behalf.

Contact an Investment Fraud Attorney at Wolper Law Firm Today

Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. If you need an investor fraud lawyer, contact our offices today. We can be reached online, at (855) 453-8613 or by email at mwolper@wolperlawfirm.com.

Jesus Rodriguez Investment Fraud Case: A Brief Timeline

In addition, Jesus Rodriguez has 15 other SEC advisor disclosures, which include the following:

• August 2023—“Client’s attorney alleges, inter alia, forgery and misappropriations of funds from the client’s account from 2014 – 2021.” The damage amount requested was $2,845,953.00 and the customer dispute settled for $2,542,784.37.
• April 2023—“CLIENT ALLEGES, INTER ALIA, THAT FUNDS WERE FRAUDULENTLY TRANSFERRED OUT OF HIS ACCOUNT 2016-2021.” The customer dispute is still pending.
• February 2022—“CLIENT ALLEGES THAT BOND PURCHASES WERE UNSUITABLE DAMAGES UNSPECIFIED 2018.” The customer dispute was denied.
• February 2022—“Complainant verbally alleges fraudulent activity in her legacy Express Credit Line account from November 1, 2018 to August 31, 2020.” The customer dispute settled for $508,447.90.
• January 2022—“Client alleges, inter alia, that funds were misappropriated from his accounts from March 19, 2014 to March 26, 2020.” The customer dispute settled for $334,326.07.
• January 2022— “CLIENTS ALLEGE FUNDS WERE MISAPPROPRIATED FROM THEIR ACCOUNT 2019 -2021 ALLEGED DAMAGES UNSPECIFIED.” The customer dispute settled for $280,871.53.
• December 2021—“CLIENT ALLEGED THAT THERE WERE FUNDS MISAPPROPRIATED FROM THEIR ACCOUNT DURING THE PERIOD DEC 2020 TO JUNE 2021. DAMAGES UNSPECIFIED.” The customer dispute settled for $102,286.62.
• November 2021—“ Without admitting or denying the findings, Rodriguez consented to the sanction and to the entry of findings that he refused to provide information and documents requested by FINRA during the course of its investigation of a Form U5 filed by his member firm. The findings stated that the U5 disclosed that Rodriguez had voluntarily resigned a month earlier following allegations regarding his use of a client line of credit for his personal benefit.” As a result, Jesus Rodriguez was barred by FINRA.
• September 2021—“CLIENT ALLEGED THAT THERE WERE FRAUDULENT WITHDRAWALS FROM HIS ACCOUNT 2019 DAMAGES UNSPECIFIED.”
• September 2021—“CLIENT ALLEGES, INTER ALIA, THAT FUNDS WERE MISAPPROPRIATED FROM THEIR ACCOUNTS AND THAT THERE WERE UNAUTHORIZED MUTUAL FUND TRADES AS WELL 2020-2021 DAMAGES UNSPECIFIED.” The customer dispute settled for $246,929.79.
• August 2021—“CLIENT ALLEGED THAT THERE WERE UNAUTHORIZED WITHDRAWALS OF FUNDS FROM HER ACCOUNT 2020-2021.” The damage amount requested was $266,000.00, and the customer dispute settled for $245,829.40.
• August 2021—“CLIENT ALLEGED, INTER ALIA, THAT FUNDS WERE WITHDRAWN FROM THEIR ACCOUNT WITHOUT THEIR KNOWLEDGE 2017-2020.” The customer dispute settled for $376,532.96.
• August 2021—“CLIENT ALLEGES FUNDS WERE MISAPPROPRIATED FROM HER ACCOUNT IN MARCH 2020.” The damage amount requested was $28,000, and the customer dispute settled for $30,470.00.
• August 2021—“Allegations regarding registered representative’s use of client line of credit for his personal benefit.” Morgan Stanley permitted Rodriguez to voluntarily resign.
• July 2021—“Clients allege, inter alia, that the FA used their line of credit for his personal benefit. 2017 – 2021.” The customer dispute settled for $6,200.