Royal Alliance has agreed to pay a fine of $400,000 to the Financial Industry Regulatory Authority for failing to act on red flags of potential misconduct tied to the actions of two former advisors in New Jersey and Massachusetts, who collectively stole some $3.8 million from four clients, and enforce associated procedures.
The ex-registered representatives took the funds from four clients from 2009 to 2017. They worked separately — each directing wire transfers or checks from client accounts into accounts for entities they had created.
(Royal Alliance has compensated the clients who lost money through the thefts and paid fines to two states, as well.)
“Some of the transfers were made in violation of firm policies and procedures for third-party payments, which the firm failed to enforce, and in some instances the transfers were also accompanied by red flags to which the firm failed to reasonably respond,” according to the letter of acceptance.
FINRA took action on the matter after reviewing the Form U5 filing tied to the firing of one of the two advisors.
The former New Jersey-based representative was barred from the securities industry in March 2018 for refusing to testify before FINRA. He also pleaded guilty to criminal charges tied to the theft of client funds and was sentenced to 70 months in prison.
At the time of the misconduct, Royal Alliance permitted wires to accounts in which a client was the owner, joint owner or trust beneficiary. The wire transfer request forms, though, specifically stated that the account titles at Royal Alliance and the recipient bank had to be identical.
Royal Alliance also allowed third-party checks, but required that the person processing the check in the firm’s cashiering group verify that the check was not going to an advisor’s office or home address and document that verification in the processing notes for the issuance of the check.
New Jersey Case
The ex-rep in the Garden State stole some $1.3 million from a disabled widow living in New Hampshire via 60 wire transfers from one of her brokerage accounts over eight years, according to FINRA.
In addition, in August 2009, the individual had a $150,000 wire sent from the woman’s account to a bank account of a law firm in New Jersey — contrary to firm procedures, since that bank account was not titled in the customer’s name.
The former rep also stole about $100,000 via forged checks tied to the widow’s account and to the account of another client.
A rep in the Bay State took $2 million from the accounts of two clients from 2013 to 2017, according to FINRA. In the case of one client, the female advisor used forged wire transfer request forms via 65 third-party wire transfers to the bank account of a limited liability company she controlled. This violated the firm’s prohibition against third-party wire transfers, including its rule hat wire transfers go to identically titled accounts.
In 2013, a member of Royal’s cashiering group noticed a discrepancy between the signatures on the second wire request form and the account records. The rep then claimed that the client “always signed her name differently,” according to the FINRA document.
The firm also asked for a copy of the rep’s LLC agreement and received a falsified document saying the LLC had been set up by the client. Royal, though, did not take any further steps to investigate the purported LLC receiving the funds.
The Massachusetts rep also stole $325,000 from another client household. She was barred from the business in March 2018 due to her failure to give information and to testify in FINRA’s investigation.
She also pleaded guilty to some criminal charges in connection with the thefts and was sentenced to 87 months in prison and three years of supervised release.
Earlier, Royal Alliance reached settlements with two state securities regulators in connection with the firm’s supervision of the New Jersey rep and a consent order with the New Hampshire Bureau of Securities Regulation. It paid a fine of $190,000 in New Hampshire and $250,000 in Massachusetts.