The Department of Enforcement of the Financial Industry Regulatory Authority (FINRA) filed a disciplinary proceeding on March 28 alleging that former broker William Bruce Smith misappropriated $100,000 from a customer.
|FINRA alleges that William B. Smith misappropriated $100,000 from a customer.
Smith, who worked for FINRA-member Triad Advisors in Shrewsbury, Ma., at the time of the misappropriation, was registered as a general securities representative and principal as well as a direct participation programs limited representative. Smith was fired by Triad Advisors in August 2011 after the misappropriation came to light, according to FINRA public disclosure records.
The FINRA complaint alleges that Smith misappropriated $100,000 from a customer identified only as SH. The complaint also states that for years Smith gave falsified documents to SH as a means to conceal his actions.
The complaint requests that Smith be sanctioned per FINRA Rule 8310(a), including the complete disgorgement of any ill gotten gains and/or full and complete restitution, plus interest. The complaint also requests that Smith bear the costs of the proceeding.
The first cause of action is for conversion of customer funds. Smith acted as SH's broker beginning in 2003. In August of that year, SH's husband died. About one month later, Smith advised SH to take $100,000 from her brokerage account at Triad Advisors and give it to Smith so he could purchase bank-issued certificates of deposits (CDs) on her behalf, the complaint says.
A CD is a promissory note that pays a specified fixed interest rate to the holder after the note reaches the maturity date. CDs are low risk investments, usually issued by commercial banks and insured by the Federal Deposit Insurance Corp. The term typically ranges from one month to five years.
Per Smith's instructions, SH withdrew $100,000 from her brokerage account and placed it in her personal checking account. She then wrote a $50,000 check, payable to a bank, and gave the check to Smith so he could purchase a CD.
In October 2003, SH wrote another $50,000 check drawn on the same personal account, payable to a different bank. She also gave this check to Smith to purchase a CD.
Instead of purchasing CDs with SH's funds, Smith converted the money to his own use by depositing the funds into the checking account of a company he owned and controlled. Smith was able to "negotiate" the two checks, which means he was able to deposit the checks into accounts other than an account belonging to the entity to which the check was made payable.
By converting his customer's funds, Smith violated Conduct Rules 2330 and 2110 of the National Association of Securities Dealers (NASD) a FINRA predecessor.
The second cause of action in the complaint is for Smith's misrepresentations, omissions and use of falsified documents.
While Smith never purchased any CDs for SH, he made both oral and written statements to SH about the fictitious CDs from 2003 until 2011, and he knew that the statements were materially false and misleading, the complaint says.
After taking her money and using it for his own benefit, Smith continually deceived SH. He said that he had purchased the CDs and that her investments were "doing fine," the complaint says. Smith also said that he had reinvested the proceeds of the CDs when they matured after shopping for the best interest rate each time.
In addition, Smith provided SH with written documents purporting to be asset reviews that identified her CD holdings. Smith provided these asset reviews for the period ending Dec. 31, 2008 and June 30, 2011, the complaint says. Each document indicated that the CDs were valued at $100,000.
Smith also gave SH a fake personal information summary in 2011 that supposedly identified her CD holdings, worth $100,000. When Smith gave these documents to SH, he knew that they were materially false and misleading, the complaint says.
In January of this year, Smith sent a letter agreement to SH that concerned supposed payment arrangements for a loan to WBS Companies, Inc. Enclosed with the letter agreement was a $25,000 cashier's check payable to SH and a request from Smith for SH to confirm that she had loaned him money. The complaint described this letter as a ruse, falsely painting the $100,000 investment as a loan.
SH had never agreed to loan money to Smith, the complaint says. She did not deposit the cashier's check. Nor did she return the letter agreement to Smith.
The misrepresentation and omission of material facts by Smith as described above, as well as his use of falsified documents, violated NASD Conduct Rule 2110 and FINRA Rule 2010.
Although Smith is no longer registered or associated with a FINRA member, he remains subject to FINRA's jurisdiction because the complaint was filed within two years of the termination of his registration with a FINRA-member firm. Smith first registered with FINRA in March 1985, and worked for Triad Advisors from June 2003 to August 2011, when the firm terminated his registration.
If you have been the victim of securities fraud you should consult with an attorney. The practice of Nicholas J. Guiliano, Esq., and The Guiliano Law Firm, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.