Ameriprise Fined $4.5 Million for Failing to Prevent Broker Theft
Ameriprise Financial Services will pay $4.5 million as part of a settlement related to the theft of almost $2 million of customer funds by five former brokers in its independent-contractor channel, the Securities and Exchange Commission said on Wednesday.
The firm failed to have policies and procedures designed to safeguard customer money by preventing and detecting theft, the regulator said. An automated surveillance tool aimed at alerting the firm to attempts to change account addresses did not function properly and a second analysis tool aimed at tracking attempts to move money from an account was limited, the regulator said.
As a result, five now-terminated brokers who were based in Minnesota, Ohio, and Virginia stole money from 2011 through 2014 without being detected.
“We are pleased to bring this matter to a resolution,” an Ameriprise spokeswoman wrote in an e-mail. “We fully reimbursed clients who were impacted after the activity was discovered.”
The firm continually reviews and improves its compliance program and has enhanced controls to better detect “this type of prohibited activity,” she wrote.
In December 2014, Ameriprise began implementing a new automated money movement system, with the capability to review outgoing wire transfers, according to the SEC’s cease-and-desist order.
Independent broker-dealers selling financial products and services through a large force of affiliated brokers have structural challenges in policing their networks. LPL Financial, the largest independent broker-dealer, has paid more than $75 million in state and federal fines and restitution since 2014.
Minneapolis-based Ameriprise has a “hybrid supervisory system” for its dispersed sales network of about 9,700 brokers, approximately 7,700 of whom are independent contractors, according to the SEC’s cease-and-desist order issued on Wednesday.
The system relies on field-based “registered principals,” advisers who double as supervisors of other brokers in their geographic area, with a centralized unit of over 175 corporate-office reviewers who are particularly dependent on the proper operation of fraud-detection tools, the order said.
The five independent brokers identified in the SEC order, all of whom have been barred by the Financial Industry Regulatory Authority, are:
- Barbara J. Stark, a broker who had 24 years of experience prior to her 2013 termination by Ameriprise, and her daughter Susan Walker, who worked with her in a Wayzata, Minn., office from October 2008 to March 2013. They misappropriated about $1 million from customers in 600 fraudulent transactions, according to the SEC;
- Jeffrey Scott Davis, who worked with Ameriprise from September 2000 to July 2013 in Virginia Beach, and misappropriated $200,000 in funds from five clients. He was on heightened supervision when his fraud was discovered;
- Justin Weseloh, a broker with five years’ experience who worked as an assistant to another Ameriprise broker in Independence, Ohio, from March 2010 to September 2013. He misappropriated $676,000 from accounts of five clients, including about $373,000 from Ameriprise accounts;
- Jennifer R. Johnson, a broker with 11 years’ experience who worked at an Ameriprise office in St. Paul, Minn., from October 2009 to March 2016. She misappropriated $21,000 from an Ameriprise client in 2014, the SEC said.