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SEC Charges Texas-Based Brokerage Firm With Violating Customer Protection Rules

11.03.29 Chad 1.1306071146055

H.D. Vest allegedly failed to supervise brokers who stole money from H.D. Vest customers

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 business expenses.

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."

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

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