The Financial Industry Regulatory Authority (FINRA) said Wednesday it fined Ameriprise Financial Services (AMP) $850,000 for failing to detect activities that allowed a registered rep to take $370,000 from accounts that were owned by five of his family members.
“Ameriprise failed to exercise reasonable diligence in supervising the transmittal of customer funds to third-party accounts,” said FINRA Executive Vice President and Chief of Enforcement Brad Bennett in a statement. “Firms need to pay special attention when funds are wired from customer brokerage accounts to accounts controlled by registered representatives, and will be held responsible when their representatives use their insider status to prey upon customers.”
The rep, who served as an office manager and sales assistant, took the funds from family-members’ accounts from October 2011 to September 2013; at the time, the accounts were in the name of his mother, step-father and grandparents as well as his domestic partner.
To obtain the funds, he submitted request forms to transfer the assets from the customers’ Ameriprise brokerage accounts into the business bank account of the office, allegedly to make investments. He then took funds from that account to pay himself additional salaries and commissions, along with other money to which he was not entitled, according to FINRA.
FINRA barred the rep from the business in June 2014.
FINRA said Ameriprise did not “adequately investigate red flags associated with nine third-party wire requests, including that the funds were being transmitted to a business bank account associated with an Ameriprise representative.”
In fact, the activities went undetected for two years “because Ameriprise failed to establish and enforce a supervisory system reasonably designed to adequately monitor the transmittal of funds from customer accounts to third parties, including those controlled by registered representatives of the firm,” FINRA says.
However, once Ameriprise discovered the misconduct, it paid restitution, interest and related fees to the clients.
The regulators also said the firm did not adequately investigate possible signature irregularities flagged on some wire request forms. Plus, although four of the nine wire requests were flagged for further review for other reasons, Ameriprise did not adequately follow up.
The conduct was discovered in September 2013 when an office employee found evidence in the trash that the office manager had been practicing the signature of a family member, according to FINRA.
In settling this matter, Ameriprise neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
In an Acceptance, Waiver & Consent form signed by an executive, Ameriprise agreed to adopt and implement “written supervisory policies and procedures reasonably designed to supervise third-party wires transfers from its customers’ accounts” within 30 days.