H.D. Vest allegedly failed to supervise brokers who stole money from H.D.
The SEC has charged Texas-based brokerage firm H.D. Vest Investment Securities
with violating key customer protection rules after the firm allegedly
failed to adequately supervise various brokers who stole money from customers. According to the SEC's
order, which H.D. Vest consented to, H.D. Vest failed to have proper policies
and procedures in place to monitor its brokers' outside business activities.
These failures allowed certain brokers to defraud brokerage customers
by transferring or depositing funds that were held in H.D. Vest brokerage
accounts into the brokers' own business accounts held outside the firm.
As part of the order, H.D. Vest neither admitted nor denied the SEC's
charges, but agreed to pay a $225,000 fine and implement a substantial
overhaul of its compliance program. The SEC says that from at least December
2007 H.D. Vest had no policies and procedures in place to monitor whether
funds being transferred from customers' brokerage accounts to outside
third-party accounts were being transferred to entities controlled by
H.D. Vest brokers. The SEC also says that H.D. Vest had no policies and
procedures in place governing the review of outside accounts maintained
by their brokers and through which the brokers paid their own securities
Because of these significant gaps in H.D. Vest's supervisory processes,
certain H.D. Vest brokers were able to misappropriate money from their
customers' H.D. Vest brokerage accounts. In one case, a now-former
H.D. Vest broker, Lewis J. Hunter, allegedly stole money over $300,000
from at least two H.D. Vest customers. Hunter did this, according to the
SEC, by wiring money directly from the customers' H.D. Vest brokerage
accounts to outside bank accounts that Hunter controlled. Hunter was subsequently
the target of an enforcement action by the SEC and, more recently, of
criminal charges filed by the U.S. Attorney for the Western District of Michigan.
The SEC says that "[i]f H.D. Vest had reasonable policies and procedures
concerning the review of third-party disbursements to its registered representatives
from customer brokerage accounts or to entities controlled by its registered
representatives, H.D. Vest likely could have prevented and detected Hunter's
misappropriation of customer funds." David R. Woodcock, Director
of the SEC's Fort Worth Regional Office, which office oversees H.D. Vest,
said: "Firms like H.D. Vest do face greater challenges in supervising
their representatives in numerous small branch offices spread across the
country, but that doesn't excuse the firm from establishing adequate
policies and procedures to address those challenges."