← Broker database 2024-06-21
Steward Partners Fined $225,000 After Senior Customer Lost $332,000 to ACH Fraud
According to FINRA, Steward Partners Investment Solutions, LLC was censured and fined $225,000 for failing to reasonably supervise externally initiated Automated Clearing House (ACH) transfers, which allowed fraudsters to steal $332,457.73 from a senior customer's account.
Third parties who had illegally obtained information relating to a checking feature on the customer's brokerage account initiated ACH transfers without the customer's knowledge or permission. The fraudulent transfers originated from over 30 different external accounts, under different names, at approximately 30 different financial institutions. Nearly all were used to pay credit card bills of third parties unrelated to the customer.
The fraud continued undetected until the firm's clearing firm alerted it about insufficient funds to process an ACH transfer. By that point, hundreds of thousands of dollars had been stolen from a senior customer's trust account.
The supervisory failures were significant. At the time of the fraudulent transfers, Steward Partners did not maintain a system reasonably designed to review and monitor ACH transfers initiated by external financial institutions. The firm used a proprietary tool from its clearing firm to flag suspicious ACH activity, but this tool only monitored internally initiated ACH transfers—not ACH transfer requests received from external institutions. The firm was unaware of this critical limitation in its supervisory tool.
Making matters worse, the firm failed to identify several red flags. A registered representative reviewed an account report showing five fraudulent ACH transactions totaling approximately $31,000, but did not identify them as suspicious. By the time of this review, the fraud had progressed substantially.
After discovering the fraud, Steward Partners worked with its clearing firm to create a new exception report and changed its systems to review externally initiated ACH transfers. The firm also conducted a lookback review for other potential victims. Fortunately, the bank processing the ACH transfers credited all stolen funds back to the customer.
For investors, particularly seniors, this case highlights the importance of monitoring account activity regularly. While the customer ultimately recovered the stolen funds, the case demonstrates how sophisticated fraudsters can exploit vulnerabilities in firm supervisory systems. Investors should review all account activity, including ACH transfers, and immediately report any transactions they did not authorize. The $225,000 fine reflects the firm's obligation to maintain adequate supervisory systems to protect customer assets, especially for vulnerable senior investors.