Many advisors and their bosses like to brag about how much money theyve made for their firm. Mark Hotton isnt one of them. The now-barred advisor has cost Oppenheimer nearly $10 million in fines and arbitration settlements, despite being employed by the firm for just four years.
The latest hit came Thursday, when FINRA slapped Oppenheimer with a $2.5 million fine for failing to supervise Hotton during his time at the firm, and ordered the brokerage to pay an additional $1.25 million in restitution to 22 former clients of the advisor.
The latest penalties are on top of the more than $6 million Oppenheimers paid to resolve customer arbitration claims related to its supervision of Hotton, FINRA says, meaning Oppenheimer has paid $10 million in fines and settlements related to his employment.
After leaving Oppenheimer, Hotton moved onto other misdeeds that landed him in prison for a scam that defrauded the producers of a Broadway musical, Rebecca, according to court records.
During his time at Oppenheimer, both he and the firm fell short of proper procedures, according to FINRA. The regulatory authority found that Oppenheimer didnt fulfill its supervisory role, ignoring many "red flags" when Hotton allegedly transferred $2.9 million in client funds to accounts he controlled over a three-year period.
SEVERE CUSTOMER HARM
"As this case demonstrates, the combination of an unscrupulous broker and a lax supervisory structure can cause severe customer harm," says Brad Bennett, FINRA's chief of enforcement. "Firms must ensure that they implement supervisory systems that are reasonably designed to both identify and respond to red flags that may indicate broker misconduct."
The New York-based firm failed to adequately inspect Hotton's record prior to hiring him in 2005, FINRA says, adding that had the firm done so, management would have seen that he was subject to "12 reportable events, including criminal charges and seven customer complaints."
Oppenheimer neither placed him under heightened supervision despite discovering that Hotton's former business partners had sued him for allegedly misappropriating $4 million, nor did the firm adequately supervise his clients' accounts, FINRA says.
It also charged that, during the course of the investigation, "Oppenheimer repeatedly failed to provide timely responses to FINRA requests for information and documents." The firm failed to file more than 300 reports on Oppenheimer advisors in a timely fashion filing them, on average, 238 days late.
Oppenheimer agreed to pay the fines while neither admitting nor denying the charges. In a statement, the firm said Hotton left Oppenheimer in 2009; FINRA barred him from the industry in 2012. "Oppenheimer has significantly enhanced its policies regarding hiring and supervision of brokers and timely FINRA regulatory filings. The firm is happy to put this matter behind us," a spokesman says.
Hotton's BrokerCheck record shows he still has five pending client complaints alleging nearly $3 million in damage for breach of contract, churning, unjust enrichment, negligence and unsuitable trades among other charges.
He joined the industry in 1993, working at M.S. Farrell, according to FINRA records. He worked at Oppenheimer from 2005 to 2009. Prior to being barred from the industry, he worked at Obsidian Financial Group a firm FINRA expelled in 2013.
FROM BROKERAGE TO BROADWAY
Hottons alleged wrongdoing continued after being expelled from the industry, court records show.
Late last year, he pleaded guilty to two counts of wire fraud in a case in which he defrauded clients seeking help to secure investors, including two producers of a Broadway play, to stage "Rebecca," according to court documents.
To help lure investors, the producers contracted Hotton in January 2012. He seemingly delivered just what they were looking for but in reality fabricated fake names and companies of investors he purportedly secured, promising about $4.5 million in funding, records show.
Hotton told the producers that, to secure some of the promised money, he would have to go on safari with one of the fake investors, the records show. The producers reimbursed Hotton $18,000 for the trip. Altogether, he received more than $35,000 in fees and reimbursement for expenses for wooing this one fake investor, according to court records. In June 2012, Hotton claimed the investor had died of malaria.
Investigations by authorities led to an indictment in November 2012. Late last year, Hotton pleaded guilty and was sentenced to 34 months in a prison in Lewisburg, Pa., according to court documents.
He is still a defendant in another case, along with several other individuals, including his wife. He is accused of fabricating documents for several electrical companies he controlled in order to sell receivable accounts on a secondary auction market, according to court documents. The records show that he and his codefendants allegedly sold the invoices for about $10 million.
Marianne Rantala, an attorney representing Hotton in that case, declined to comment.
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