Indiana RIA Charged with Stealing $1 Million from RBC Wealth Management
If your firm mistakenly deposits $1 million in your brokerage account, can you keep it?
The Financial Industry Regulatory Authority made clear in an enforcement complaint against a former RBC Wealth Management-U.S. broker in Indianapolis on Wednesday that the answer is no.
In a disciplinary complaint filed on Tuesday, Finra charged Thomas Lee Johnson, a 34-year industry veteran, with stealing ( “converting”) $1 million that RBC transferred into his count in a foreign currency conversion error. The firm had incorrectly priced his investment (shares and warrants) in Doosan Heavy Industries & Construction Co. in South Korean won instead of U.S. dollars, valuing them at at $1,059,544.98 instead of the actual value of $951.01.
“Because Johnson monitored his RBC Account on a daily basis, he knew the actual value of his Doosan holdings and that he had received the $1,059,544.98 in error,” the complaint said.
Finra, which also accused Johnson of making false statements to its investigators, said the actions violated its Rule 2010 requiring members to observe high standards of commercial honor and just and equitable principles of trade, as well as its Rule 8210 requiring cooperation.
Johnson, who runs a registered investment advisor called Royal Capital Wealth Management that he set up one month after the Royal Bank of Canada wealth unit fired him in December 2017, said he refused to settle with Finra because it wants to bar him from registering as a broker.
“When they finally convinced me it was an error, the money was back in there before they even asked for it,” Johnson said of RBC. “I honestly should have known better, but I didn’t think it was that big of a deal.”
Wiring the money out of his brokerage account to a non-RBC bank checking account was an honest mistake, he said. RBC automatically liquidated his investments when it switched foreign transfer agents, and he and his assistants believed they verified the price of the warrants correctly on their Bloomberg terminal, not realizing they were reading the foreign currency valuation.
Finra’s complaint implies that the broker was too sophisticated for such an error, and asserts that he never tried to confirm the price.
RBC fired Johnson on December 14, 2017, for “violation of company policy, not client related,” according to the complaint. An RBC spokeswoman said she could not immediately comment on the case.
Johnson’s new firm manages $110.5 million in client assets, according to its most recent regulatory ADV filing. Although some RBC clients stayed behind, he claimed that his assets under management are relatively flat because many of his approximately 50 clients have consolidated assets with his new firm that were held away from RBC.
“The SEC and Finra are supposed to be protecting clients from bad brokers and I guess they have determined I am a bad broker, but it’s not like it had anything to do with clients’ money,” he said.
Aside from the disclosure of Finra’s investigation, his BrokerCheck record shows a single other disclosure—a 1978 plea as a college student to trespassing and stealing lumber from a construction site.
Johnson began his 34-year career as a broker in 1983 with Dean Witter Reynolds, and spent 16 years at Smith Barney and Lehman Brothers before joining RBC in Indianapolis in 2009, according to BrokerCheck.
He runs his RIA firm, which is based in Carmel, Indiana, with his brother Andrew Johnson, whose 40-year career as a broker began at Merrill Lynch and proceeded to Dean Witter, Smith Barney, Lehman and RBC. Andrew Johnson was terminated from RBC a month after Thomas for “violation of company policies, including policy regarding outside speaking engagements,” according to his BrokerCheck record.
Royal Capital is named for the street where Andrew lives, according to his brother.