Fidelity Brokerage Services will cough up $1.3 million to settle allegations it did not detect or prevent a fraudster from ripping off nine people by posing as a Fidelity broker.
The Financial Industry Regulatory Authority fined Fidelity $500,000 and ordered it to pay $530,000 in restitution for its failure to detect or follow up on multiple red flags associated with the case of Lisa Lewis.
According to FINRA, Lewis found her nine victims through a different brokerage firm, one from which she’d been fired, and told them she was now a Fidelity broker and urged them to establish new accounts with Fidelity. She named herself as an owner on joint accounts with her victims and, in all, established more than 50 accounts and stole customers’ assets from those accounts through transfers and debit card transactions, FINRA said.
Lewis pleaded guilty to wire fraud, was sentenced to 15 years in prison and ordered to pay more than $2 million in restitution for the scheme, which ran from August 2006 through May 2013.
FINRA also found that Fidelity faltered by not detecting or following up on several red flags – for instance, by not detecting Lewis’s consistent pattern of money moving and by overlooking red flags in telephone calls handled by its customer service call center. There, the agency said, Fidelity might have noticed indications that Lewis was impersonating or taking advantage of her victims.
“Protection of senior investors is a core mission for FINRA and why we started the FINRA Securities Helpline for Seniors. This case is a reminder to firms to ensure their supervisory systems and procedures are designed to protect senior investors from harm and to adequately follow-up on red flags to detect potential fraudulent account activity,” Brad Bennett, FINRA’s executive vice president and chief of enforcement, said in a statement.
FINRA also said it found that Fidelity’s supervisory systems and procedures were inadequate in detecting or preventing Lewis’s activities. It said Fidelity maintained a report designed to identify common email addresses shared across multiple accounts, but it failed to adequately review and investigate those reports it generated, including a March 2012 report that showed Lewis’s email address was associated with dozens of otherwise unrelated accounts. That report was not reviewed by anybody until April 2013, more than a year after it was generated, FINRA said.
Fidelity neither admitted nor denied FINRA’s charges in settling the matter.
