Securities America to Pay $1.75M for Failing to Protect Clients From Ponzi Scheme
An independent RIA was able to take $8 million from at least 15 clients of the Advisor Group subsidiary, the SEC says.
Securities America Advisors agreed to pay $1.75 million for failing to protect clients from losing about $8 million in an independent advisor’s Ponzi scheme, according to the Securities and Exchange Commission.
Without admitting or denying the SEC’s findings, the Advisor Group subsidiary also agreed to cease and desist from further securities violations and retain an independent compliance consultant.
Advisor Group did not immediately respond to a request for comment Friday.
According to an SEC order, from November 2014 to March 2018, Securities America (SAA) adopted the same policies as Securities America Inc. (SAI) for safeguarding client assets from misappropriation. SAI is the introducing broker for SAA advisory clients and both have been owned by Advisor Group since the merger of Advisor Group and Ladenburg Thalmann was finalized in February 2020.
SAI’s Financial Investigations Unit, Cashiering and Trade Support had primary responsibility for identifying potential misappropriation of SAA client assets, according to the SEC. But they failed to implement required policies and procedures, the SEC alleged.
According to the SEC order, FIU’s automated Trade Monitor surveillance system generated multiple alerts for potentially suspicious withdrawals from client accounts but its analysts didn’t carry out the prescribed processes for investigating those alerts.
Instead, Cashiering allowed disbursements without the required signatures, while Trade Support didn’t contact clients to verify they had initiated disbursement requests and, when they did carry out verification procedures, failed to obtain the required information from clients, the SEC alleged.
As a result, Hector May, the Rockland County, New York owner of an independent state-registered investment advisor whose clients participated in certain SAA advisory programs, was able to misappropriate about $8 million from the accounts of at least 15 SAA advisory clients, the SEC alleged.
In a Dec. 13, 2018 complaint, the SEC had alleged May and his daughter, Vania Bell, conducted a multimillion-dollar Ponzi scheme that defrauded local community members as well as members of their family and close friends.
In a parallel action filed Dec. 13, 2018, the U.S. Attorney’s Office for the Southern District of New York filed criminal charges against May, and he pleaded guilty to those charges.
On Aug. 1, 2019, Geoffrey S. Berman, then the U.S. Attorney for the Southern District of New York, announced May was sentenced to 13 years in prison for participating in a conspiracy to defraud investment advisory clients out of more than $11 million. May was also ordered to pay $8 million in restitution and forfeit $11.5 million.
SEC headquarters in Washington (Photographer: Andrew Harrer/Bloomberg)