According to FINRA, American Portfolios Financial Services, Inc. was censured and fined $225,000 for supervisory failures that allowed a sales assistant to convert approximately $390,000 of customer funds through fraudulent check disbursements and wire transfers.
The firm was found in violation of its supervisory obligations regarding the monitoring of customer fund transmittals. The firm's supervisory system and written procedures were not reasonably designed to monitor transmittals of customer funds to third parties, and the firm failed to enforce its existing procedures. Most of the affected customers were senior citizens, making this case particularly egregious. The sales assistant issued checks to third parties at addresses associated with the assistant's family members and wired funds to accounts controlled by the assistant's family.
After the firm enhanced its wire transfer procedures, the sales assistant adapted by using checks instead, causing approximately $340,000 to be issued from customer accounts to the same entity controlled by the assistant and family members. The sales assistant falsified customer authorization forms and forged customer signatures in connection with each fraudulent transaction. The scheme only came to light when a customer's daughter alerted the firm to the theft.
Notably, the firm had previously discovered similar misconduct by a registered representative but declined to adopt an exception report for transmittals from multiple customer accounts to the same third party. Additionally, the firm failed to enforce its own procedures requiring signature verification. After learning about the theft, the firm terminated the sales assistant and reimbursed all affected customers. Investors, particularly seniors, should monitor their account statements carefully for unauthorized transactions. This case illustrates the critical importance of firms implementing comprehensive controls, including exception reports that flag patterns such as multiple accounts sending funds to the same third party.
