Texas-Based Broker-Dealer Faces SEC Charges Over Supervisory and Customer Protection Violations

The Securities and Exchange Commission is charging H.D. Vest Investment Securities with violating customer protection rules. The regulator contends that the Texas-based broker-dealer did not adequately supervise registered representatives that are accused of misappropriating customer monies.

H.D. Vest will pay a penalty to settle the charges. It has consented to get an independent compliance consultant that will help the firm enhance its supervisory controls.

The SEC’s order, which institutes a settled administrative proceeding, said that the firm did not have proper procedures and policies to oversee the external business activities of representatives. This allowed some of them to use outside businesses to bilk the brokerage firm’s customers. Some even deposited or moved customer brokerage funds into these external business accounts.

The Commission contends that the Texas-based brokerage firm did not abide by customer protection rules. The rules required H.D. Vest to conduct certain calculations and, if needed, place monies in a reserve account in case customers are hurt by misconduct. The firm did not make these calculations nor did it keep a reserve account. The SEC also said that the broker-dealer did not have the adequate supervisory controls that would have allowed it to track the movement of customer funds to the outside businesses run by registered representatives.

Last month, an ex-H.D. Vest broker was arrested and charged with wire fraud. Lewis Joseph Hunter allegedly contacted five elderly persons-they were his clients while he was at the firm- after he had already left the broker-dealer. He allegedly persuaded them to put their money in what ended up proving to be worthless stocks. They gave him some $661,500 to invest. He is accused of persuading one investor to let him transfer $150,000 from his account at HD Vest to an account that he controlled.

Hunter purportedly gave them investment advise, notified the individuals that he was using their money to buy securities, and gave them stock certificates to back up his statements. According to a federal prosecutor, Hunter was, in fact, using the money for personal enrichment, to cover his personal expenses, and pay back other investors who had become suspicious and demanded their funds back.

The SEC has already ordered Hunter to cease and desist from activities related to investments. The agency told him to pay a $150,000 civil penalty and $296,000 in restitution.

Our Houston securities fraud lawyers are here to help investors get their money back. We have helped thousands of individual and institutional investors recoup their funds, representing clients in arbitration and the courts. Contact our Texas securities law firm today. Your initial consultation with Shepherd Smith Edwards and Kantas, LTD LLP is a free, no obligation case assessment.

Read the SEC Order (PDF)

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