FINRA Sanctions Fidelity Brokerage Services LLC $1 Million for Supervisory Failures
Firm Failed to Follow Up on Red Flags to Detect or Prevent Theft of Funds From Senior Investors by Fraudster Posing as Fidelity Broker
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it fined Fidelity Brokerage Services LLC $500,000 and ordered the firm to pay nearly $530,000 in restitution for failing to detect or prevent the theft of more than $1 million from nine of its customers, eight of whom were senior citizens. Lisa Lewis posed as a Fidelity broker, obtained her victims' personal information, and systematically stole customer assets through numerous transfers and debit-card transactions.
FINRA found that from August 2006 until her fraud was discovered in May 2013, Lewis was running a conversion scheme by targeting former customers from another brokerage firm from which she had been fired. Lewis told the victims she was a Fidelity broker and urged them to establish accounts at the firm and also established joint accounts with her victims in which she was 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. In June 2014, Lewis pleaded guilty to wire fraud, and was sentenced to 15 years in prison and was ordered to pay more than $2 million in restitution to her victims.
FINRA found that Fidelity failed to detect or adequately follow up on 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. Fidelity also failed to detect Lewis' consistent pattern of money movements and overlooked red flags in telephone calls handled by its customer-service call center in which there were indications that Lewis was impersonating or taking advantage of her senior investor victims.
Brad Bennett, FINRA's Executive Vice President and Chief of Enforcement, said, "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."
FINRA also found that Fidelity's inadequate supervisory systems and procedures contributed to the failure to detect and prevent Lewis's fraudulent activities. 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 the review and investigation of the reports. As a result, there was a backlog in reviewing thousands of reports, including a report in March 2012 showing that Lewis' email address was associated with dozens of otherwise unrelated accounts. The report was not reviewed by anyone at Fidelity until April 2013, more than a year after it was generated.
In settling this matter, Fidelity neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2014, members of the public used this service to conduct 18.9 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database. Investors can also call FINRA's Securities Helpline for Seniors at (844) 57-HELPS for assistance or to raise concerns about issues they have with their brokerage accounts and investments.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business - from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.