More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
The Financial Industry Regulatory Authority (FINRA) announced Tuesday that it had fined Citigroup Global Markets Inc. $500,000 for failure to supervise a former registered sales assistant in its branch office in Palo Alto, Calif.
Tamara Moon was suspended in August for allegedly misappropriating $749,978 from the accounts of 22 elderly and ill clients, falsifying account records and engaging in unauthorized trades within client accounts. Citibank neither affirmed nor denied the charges in concluding the settlement, but consented to the entry of FINRA's findings.
According to FINRA, Moon took advantage of supervisory lapses to siphon off funds from the accounts of vulnerable clients and even her own father. FINRA is still investigating individuals involved in her supervision, and said that numerous red flags should have resulted in further inquiries. Those inquiries, it said, would have revealed what Moon was doing.
Some of the red flags were exception reports highlighting conflicting information in new account applications and customer account records reflecting suspicious transfers of funds between unrelated accounts. Failure to implement "reasonable systems and controls regarding the supervisory review of customer accounts" allowed Moon to falsify new account applications and other documentation.
"Tamara Moon used her knowledge of Citigroup's lax supervisory practices at the branch to take advantage of some of the firm's most vulnerable customers, including the elderly. Citigroup had reason to know what she was doing and could have stopped her,” said Brad Bennett, FINRA executive vice president and chief of enforcement, in a statement:
Her victims were said to have included an elderly widow from whose account she misappropriated $80,000. The exception report showed an area code for a telephone number did not correspond to the true area code; in addition, a street address did not match the city and zip code. When questioned, Moon said that the client had moved to Arizona, and although the explanation was not reasonable, Citibank did not inquire further.
She also allegedly opened an account in the name of a deceased client after Citibank had been notified that the client had passed away, then created a fraudulent account in the name of the deceased's widow and later issued checks from the latter account to her own personal bank account.