Securities America Advisers, the RIA arm of leading independent broker-dealer Securities America Inc., was fined $1.75 million by the Securities and Exchange Commission Wednesday for allegedly failing to safeguard clients from a rogue broker who pleaded guilty in 2018 to stealing $8 million from clients.
The broker, Hector May, was registered with Securities America from 1994 to 2018, according to his BrokerCheck report. Securities America fired him in March of that year for “misappropriation of client assets,” according to BrokerCheck, and he pled guilty to investment adviser fraud in federal court later that year.
Securities America Advisors neither admitted to or denied the SEC’s findings in the matter. A spokesperson for Securities America, which is one of the Advisor Group broker-dealers, was not immediately available to comment.
According to the SEC’s administrative order Wednesday, Securities America dropped the ball when putting into place policies and procedures to keep clients’ assets safe from theft.
From November 2014 to March 2018, Securities America Advisors, the registered investment adviser, adopted the policies of Securities America Inc., the introducing broker for its advisory clients, for safeguarding client assets from misappropriation, and delegated to the broker-dealer the responsibility for surveilling the advisory accounts, according to the SEC.
That’s when the problems started. The SEC’s charges allege that three broker-dealer units were responsible for identifying potential theft client assets, but they failed to implement required policies and procedures.
The SEC alleged that one Securities America surveillance system generated multiple alerts for potentially suspicious withdrawals from client accounts, but its analysts failed to carry out the prescribed processes for investigating those alerts.
The commission also alleged that the firm permitted disbursements without the required signatures, and another group failed to contact clients to verify that they had initiated disbursement requests.
As a result of these failures, May “misappropriated,” or stole, about $8 million from the RIA’s accounts of at least 15 Securities America clients, according to the SEC.
In 2019, May was sentenced to 13 years in prison and ordered to pay $8.4 million in restitution.
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