(FINRA Case #2012034037602)
FSC Securities Corporation (CRD #7461, Atlanta, Georgia) submitted an AWC (Accept, Waiver & Consent) in which the firm was censured and fined $200,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain, and enforce a supervisory system that was reasonably designed to review and monitor third-party check requests from customer accounts.
The findings stated that a registered representative associated with the firm sold memberships in an investment fund created by a former firm representative. Without the firm’s knowledge or approval, the representative sold memberships in the fund, which was not an approved product for sale, and the firm did not therefore supervise the representative’s sales. In connection with the representative’s sale of the fund memberships, the representative submitted to the firm Letters of Authorization (LOA) signed by each of the 15 firm customers, which authorized in aggregate approximately $1.6 million to be transferred from their firm brokerage accounts to a bank account the fund controlled.
The findings also stated that the fund ultimately lost millions of dollars through speculative trading and other investments. To cover up the losses, the former firm representative created false account statements that fraudulently reflected fictitious assets and investment returns. The former representative made these false account statements available to the fund investors through its website. The firm’s customers who invested in the fund suffered significant losses.
The findings also included that the firm failed to establish and maintain a supervisory system including WSPs (Written Supervisory Procedures) that were reasonably designed to ensure compliance with applicable securities laws and regulations. In particular, the firm failed to establish and maintain reasonable supervisory controls and procedures to monitor customer accounts to identify and review for patterns involving multiple transmittals of funds from customer’s accounts to the same third-party payee.
The firm’s required annual testing of its supervisory controls and reports was not fully documented or verified, and failed to detect any issues with its review of third-party check requests. The firm’s procedures allowed for a decentralized manual review of third-party check requests. The firm failed to develop and utilize any exception reports to bolster its decentralized manual review of LOAs (Letters of Authorization). Consequently, the firm’s supervisory system was too limited to detect the representative’s misconduct, which involved—among other things—a pattern of checks issued from customer accounts to the same third-party payee. As a result, the firm failed to conduct reasonable supervision of third-party check requests coming from a single branch office, and approved the transmittal of approximately $1.6 million of customer funds to the fund.
If you feel you have been misled or taken advantage by FSC Securities Corporation or it’s representatives or any Broker and wish to discuss legal action, please contact Darren Blum at 1-877-786-2552 (1-877-STOCK LAW), www.stockattorneys.com for a free consultation.