The Financial Industry Regulatory Authority (FINRA) has imposed an over $1 million penalty on Fidelity Investment’s Fidelity Brokerage Services (Fidelity) for failing to protect clients from a financial fraud committed by a woman pretending to be a broker for the firm. Lisa A. Lewis (Lewis) stole over $1 million from customers, most of whom were elderly investors. FINRA says that the firm’s retail brokerage arm should have been able to detect the scam, but Lewis was able to perpetrate her fraud because Fidelity’s supervisory controls were lax.
According to the self-regulatory organization (SRO), from August 2006 to May 2013, Lewis told customers from a firm she was fired from for purported check-kiting and improperly borrowing customer funds that she was with Fidelity, when she had no such connection to the firm. Lewis set up Fidelity accounts by using the personal data of nine people and placed the accounts in their name, as well as established joint accounts with them in which she named herself co-owner. Lewis then had all communication regarding the accounts sent to her. Lewis was able to set up over 50 individual and joint accounts at the firm. She proceeded to convert assets from these accounts for her own benefit.
Last year, Lewis pleaded guilty to wire fraud related to the elder financial fraud scam, and she is now behind bars where she is serving a 15-year prison term. She also has to pay over $2 million in restitution to the customers she harmed.
FINRA is fining Fidelity Brokerage Services $500,000 and ordering it to pay $530,000 in restitution. By settling, the broker-dealer is not denying or admitting to the charges.
FINRA said that Fidelity should have responded to red flags that arose in the accounts established by Lewis. For example, accounts that were supposedly unrelated had the same mailing addresses, email address, and phone number as the ones affiliated with Lewis. There were also irregular money movements taking place in the accounts.
Money would be moved from individual customer accounts to joint accounts and then to Lewis’ own accounts and later to another one of her accounts at a third-party bank. The regulator also believes the firm ignored warnings that should have been elicited when Lewis would call pretending to be one of her customers who was asking to transfer funds but couldn’t answer key questions to verify that she was the owner of the accounts.
The SRO said that although Fidelity kept up a report to identify when multiple accounts shared common email addresses, it did not implement the procedures related to how to use the report nor did it put into effect the needed resources to properly examine and investigate the reports.
Because of this, there was a backlog of thousands of reports that had yet to be reviewed, including one from 2012 showing that Lewis’s email address was on dozens of accounts. It was not until more than a year later that the particular report was actually reviewed by someone at Fidelity.
Our elder financial fraud law firm represents investors seeking to recover their money. Brokerage firms are supposed to safeguard investors against fraud. When their negligence allows for investors to lose money, this can be detrimental to a customer. Contact Shepherd Smith Edwards and Kantas, LTD LLP.
FINRA Sanctions Fidelity Brokerage Services LLC $1 Million for Supervisory Failures, FINRA, December 18, 2015