SEC Bars Merrill Broker Imprisoned in $8.7 Million Fraud Case
The Securities and Exchange Commission on Thursday barred a former Merrill Lynch broker who pleaded guilty in March to a long-running, multi-million dollar bank fraud scheme using his pre-pledged muni bond portfolio.
Jeffrey T. Kluge, who consented to the bar from affiliating with any broker-dealer, investment adviser, muni securities dealer, rating agency or transfer agent, admitted that he defrauded two community banks of $8.7 million by using false account statements to pledge the same collateral for multiple loans over 15 years as a Merrill broker.
Kluge, 47, is currently serving his sentence at a minimum security facility in Duluth, according to the Federal Bureau of Prisons, which lists his release date as May 4, 2021. His lawyer, Douglas A. Kelly in Minneapolis, did not return a call for comment.
A spokesman for Merrill did not immediately return a request for comment.
The Financial Industry Regulatory Authority barred Kluge in June for failing to respond to its requests for information during an investigation, according to BrokerCheck.
Kluge, who spent his entire 25-year career as a registered rep with Merrill, was a senior vice president at the time of his resignation in December, according to an administrative order published Thursday by the SEC. The title indicates an advisor who generated $1 million in production credits and $1.5 million in revenue, according to Merrill’s 2017 compensation plan.
According to the SEC and Kluge’s plea agreement, his scheme began in 2001 when he obtained a $150,000 loan from St. Paul-based Alliance Bank by using a falsified account statement showing shares in municipal bond funds sufficient to serve as collateral.
Through November 2016, he obtained periodic line-of-credit increases from Alliance and from Oakdale, Minn.-based Platinum Bank, fraudulently pledging assets in his Merrill brokerage accounts that were pre-pledged to the firm as collateral for its loans to him. He had an outstanding balance of more than $5.989 million as of last November with Alliance and of $2.68 million with Platinum, according to filings in the U.S. District Court in Minnesota.
According to his plea agreement, Kluge provided doctored Merrill Lynch statements to both banks and used a fictitious Merrill employee’s name and email to substantiate his purported muni bond fund holdings at Merrill. He concealed from each bank that he was using the same pre-pledged collateral for each of line.
Kluge’s BrokerCheck record indicates that he may have been scurrying to generate money to cover his loans shortly before his scheme was discovered. Five customers between October and November 2016 alleged that he made unauthorized trades in their accounts. Each claim was settled by Merrill for $40,004.47 without a contribution from Kluge, according to BrokerCheck.