FINRA slammed Fidelity Brokerage Services with a $500,000 fine and ordered it to pay nearly $530,000 in restitution for failing to detect the theft of more than $1 million from nine of its customers by a woman posing to be a Fidelity broker.
Lisa Lewis obtained her victims' personal information and systematically stole customer assets through numerous transfers and debit-card transactions. Eight of the nine victims were senior citizens. Lewis pleaded guilty to wire fraud in June 2014 and was sentenced to 15 years in prison and ordered to pay more than $2 million in restitution to her victims.
FINRA found that from August 2006 until her fraud was discovered in May 2013, Lewis ran a conversion scheme by targeting former customers from another brokerage firm from which she had been fired. She told them she was a Fidelity broker and urged them to establish joint accounts at the firm in which she was also listed as an owner. She eventually established more than 50 accounts and converted assets from a number of these accounts for her own personal benefit.
FINRA scolded Fidelity for failing to detect multiple red flags related to Lewis's scheme. For example, though Lewis' victims were unrelated to one another, their various accounts shared a number of common identifiers tying them all to Lewis, such as a common email address, physical address or phone number.
FINRA also faulted Fidelity's inadequate supervisory systems and procedures. Though Fidelity maintained a report designed to identify common email addresses shared across multiple accounts, it failed to implement procedures regarding the report's use and dedicate adequate resources to review and investigate reports. As a result, there was a backlog in reviewing thousands of reports.
"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.
Fidelity neither admitted nor denied the charges, but consented to an entry of FINRA's findings.
Adam Banker, a spokesperson for Fidelity, noted in an email that the firm assisted law enforcement with its investigation and has since taken steps to strengthen its controls, including enhancing account monitoring and surveillance. "We take the protection of customer accounts very seriously. We regret that the fraud committed by this person, who is now serving time in prison for her crimes, included nine of our customers," Banker said in the email.
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