FINRA Sanctions Oppenheimer & Co. $3.75 Million for Supervisory Failures
Firm Fined $2.5 Million and Ordered to Pay Restitution of $1.25 Million for Failing to Supervise Former Oppenheimer Broker Mark Hotton
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Oppenheimer & Co. Inc. $2.5 million and ordered the firm to pay restitution of $1.25 million for failing to supervise Mark Hotton, a former Oppenheimer broker who stole money from his customers and excessively traded their brokerage accounts. FINRA permanently barred Mark Hotton from the securities industry in August 2013.
Brad Bennett, FINRA's Executive Vice President and Chief of Enforcement, said, "As this case demonstrates, the combination of an unscrupulous broker and a lax supervisory structure can cause severe customer harm. Firms must ensure that they implement supervisory systems that are reasonably designed to both identify and respond to red flags that may indicate broker misconduct."
FINRA found that Oppenheimer failed to supervise Hotton in multiple respects. First, Oppenheimer failed to adequately investigate Hotton prior to hiring him, even though FINRA records showed that he was subject to 12 reportable events, including criminal charges and seven customer complaints. The firm also failed to place Hotton under heightened supervision despite learning, shortly after Hotton joined the firm, that his business partners had sued him for defrauding them out of several million dollars. Additionally, Oppenheimer failed to respond to "red flags" in correspondence and wire transfer requests demonstrating that Hotton was wiring funds from Oppenheimer customer accounts to entities that he owned or controlled. This allowed Hotton to transfer more than $2.9 million from those customers' accounts. Finally, Oppenheimer failed to adequately supervise Hotton's trading of his customers' accounts despite the fact Oppenheimer's surveillance analysts detected Hotton was trading the accounts at presumptively excessive levels.
In addition, FINRA found that Oppenheimer failed to make more than 300 required filings to FINRA about some of its brokers in a timely manner. On average, these filings were 238 days late; and thus, the investing public and other broker-dealers were not timely made aware of serious allegations made against Oppenheimer's registered representatives, including Hotton. Also, during the course of FINRA's investigation, Oppenheimer repeatedly failed to provide timely responses to FINRA requests for information and documents.
Oppenheimer has paid more than $6 million to resolve customer arbitration claims related to its supervision of Hotton. FINRA ordered $1.25 million in restitution to 22 additional customers who suffered losses but had not filed arbitration claims.
In settling this matter, Oppenheimer 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.
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.