The Financial Industry Regulatory Authority has fined independent broker-dealer Royal Alliance Associates $400,000 after two of its brokers, acting independently of each other, stole a total $3.8 million from four customers by directing wire transfers or checks from customer accounts into accounts for entities they created.
According to a letter of acceptance, waiver and consent issued by FINRA, Royal Alliance failed to enforce its procedures or, in certain instances, respond to red flags of potential misconduct in processing the wire transfer and check requests through which the thefts were perpetrated. The brokers were not named in the letter, and Royal Alliance has compensated all of the customers.
FINRA claims that one registered representative in New Jersey stole money from the accounts of two of his customers between October 2009 and July 2017. Most of the money was stolen from a disabled widow who resided in New Hampshire.
The New Jersey representative, using forged wire transfer request forms, had more than 60 wire transfers totaling nearly $1.3 million sent from the client’s Royal Alliance account to the bank account of an LLC he created and controlled. The LLC’s address on publicly available documents was the same as the New Jersey representative’s office address.
FINRA said that the broker-dealer’s cashiering group unreasonably treated certain transfers as first-party transactions and processed them in violation of the firm’s prohibition against third-party wire transfers.
Other wire transfers were designated as being to client’s bank account but were sent to the same account number at the bank previously designated as the LLC’s account — a red flag which Royal Alliance failed to identify, FINRA noted.
The New Jersey representative was barred from the securities industry in a March 2018 for refusing to testify before FINRA. He also pleaded guilty to certain criminal charges in connection with these matters and was sentenced to 70 months in prison.
Another registered representative based in Massachusetts stole money from the accounts of two of her customers between June 2013 and June 2017. Using forged wire transfer request forms, she stole more than $2 million from one customer through 65 third-party wire transfers to the bank account of an LLC she controlled and through which she conducted her business.
“The cashiering group again unreasonably treated these as first-party transfers,” FINRA stated in the AWC letter. “The wire request forms identified the recipient bank account as being titled almost identically to the Massachusetts representative’s company’s name, a red flag.”
FINRA noted that in July 2013, a member of Royal Alliance’s cashiering group noticed a discrepancy between the signatures on the second wire request form and the account records.
In response, the Massachusetts representative claimed that the customer always signed her name differently, which the firm accepted without contacting the customer or taking any other steps to verify that the signature was valid.
At that time, the firm also asked for a copy of the LLC agreement for the LLC that was receiving the funds. The Massachusetts representative provided a falsified LLC agreement, creating the appearance that the LLC was established by the customer.
The Massachusetts representative also stole $325,000 from another couple who were her customers.
Following the discovery of the thefts, FINRA claims that Royal Alliance’s undertook remedial measures to address the deficiencies in the application of its procedures.
Royal Alliance settled with two state securities regulators in connection with the firm’s supervision of the New Jersey representative. The firms was fined $190,000 by the New Hampshire Bureau of Securities Regulation, and $250,000 by the New Jersey Bureau of Securities.
The Massachusetts representative was barred from the securities industry in March 2018 due to her failure to provide information and failure to testify in FINRA’s investigation. She also pleaded guilty to certain criminal charges and sentenced to 87 months in prison and three years of supervised release.
Royal Alliance has approximately 4,000 registered individuals and more than 1,500 branches. The broker-dealer agreed to a censure and fine, without admitting or denying FINRA’s findings.