Recent reports from Financial Industry Regulatory Authority, or FINRA, detail a macabre series of fraudulent wire transfers. From February through September 2012, a registered representative of Cape Securities, Inc., a Georgia-based brokerage firm, misappropriated over $630,000 via forging signatures, including signatures of the recently deceased. He transferred those funds for personal use into the accounts of seven different customers as well as his own branch’s operations account.
As generally required, most brokerage firms carry internal security measures to prevent and report such fraudulent activities. However, Cape Securities’ Written Supervisory Procedures and Anti-Money Laundering systems measured shockingly below industry standards. FINRA determined that the internal staff who were processing these wire-transfer requests were “not required to validate information on the letters of authorization used to transfer funds from customer accounts.”
Cape Securities eventually did catch the representative. It took a few months, but an internal employee noted inconsistencies on a client signature. When further examined, the forged signature was from a deceased customer, and it was dated after his or her death. Later findings would report that multiple forgeries occurred in this posthumous fashion.
Common sense would suggest that Cape Securities would either fire, suspend, or strictly supervise the criminally-probable registered representative. But Cape — instead of placing any restrictions or reviewing all of his previous third-party wire-transfer requests — did not make any additional inquires into the matter.
Cape Securities didn’t just look the other way, they didn’t look at all.
This lax punishment in the face of egregious fraud signals a predictable symptom of recurring problems at Cape Securities. In addition to the discovery of fraudulent wire-transfer requests, Cape was simultaneously fined for excessive activity of their customer’s exchange-traded funds (ETFs). According to FINRA, Cape’s unrestrained trading resulted in annualized turnover ratios ranging from 7.09 to 19.67 for least 15 customer accounts from a Manhattan branch.
Additionally, due to the significant amount of commissions charged, “the annualized cost-to-equity ratios ranged from 11.02% to 63.74%.”
FINRA fined Cape Securities Inc., $125,000 and ordered stricter guidelines be put in place. If you’ve been damaged by Cape Securities Inc., or by similar brokerage firms, the investment fraud attorneys at Investor Defense Law LLP may be able to help you recover your losses.
Investor Defense Law LLP is a law firm dedicated to help investors in CA, GA, and WA recover losses caused by stockbrokers, financial advisors, or investment firms. To learn more, contact an investment fraud attorney at 800.487.4660.