One of the largest wealth managers missed “multiple alerts” and “red flags” that could have put a stop to a massive fraud case years earlier, according to the SEC.
The RIA of Advisor Group’s Securities America
Without any contributions from the 24-year veteran of the firm and the founder of a New City, New York-based RIA called Executive Compensation Planners, Securities America has also paid nearly $14 million in three settlements with former clients alleging they were victims of the misappropriation, according to May’s detailed FINRA BrokerCheck
Between November 2014 and May’s termination amid the allegations in March 2018, Securities America’s RIA “failed to implement policies and procedures for the review of automatically generated surveillance alerts after client disbursements had occurred,” the order states. It “also failed to implement reasonably designed policies and procedures for reviewing client disbursement requests for possible misappropriation before the disbursements occurred.”
Representatives for Advisor Group, an independent broker-dealer network of six firms in which Securities America is one of the largest companies, weren't immediately available to respond to requests for comment. In the past, the company has noted that it cooperated with federal and SEC investigations and was seeking to resolve client claims relating to May’s case.
In a defense memo at his August 2019
May diverted client assets by convincing them to invest in bonds held away from Securities America so that they could get better prices and avoid certain fees on the products, according to the SEC settlement. In order to make it appear that the investments were yielding returns, he used phony account statements hiding the fact that he had steered their money toward his own personal use, the regulator says.
Just as in other fraud cases involving wealth managers, the allegations of clients and regulators point out basic deficiencies that could have prevented the harm to victims or at least put a stop to it earlier. During the more than three years covered by the SEC case, the company’s anti-money laundering analysts and other staff in the Financial Investigations Unit allegedly failed to follow up on 55 alerts suggesting suspicious client disbursements, the order states. The “multiple alerts” should have “raised red flags,” according to the SEC.
“Among the holders of these accounts were senior citizens (“Client A”) and a company pension fund (“Client B”) whose account profiles identified growth among their investment objectives and stated that they held no assets away from SAA,” the settlement says. “Yet, despite these factors and multiple large disbursements over time that were emptying these accounts, none of the 55 alerts were analyzed pursuant to SAA policies. Consequently, they were not escalated for the opening of an AML investigation.”
Two other divisions of the RIA, its Operations Cashiering and Operations Trade Support units, were allegedly missing on the job when May’s clients made disbursements and wire requests that the company’s policies required to be verified either through new signatures or verbal confirmation. In summing up the case against Securities America’s RIA, the regulator said May’s misappropriation occurred “as a result of these failures.”
As part of the settlement, Securities America accepted a censure for violations of the Advisers Act and will undergo a comprehensive review of its “supervisory and compliance policies and procedures designed to detect and prevent the misappropriation of assets from client accounts.”
Within 180 days, the independent consultant will issue a report to the SEC and to the firm outlining changes that Securities America must implement three months after the report. Due to the “confidential financial, proprietary, competitive business or commercial information” likely to be present in the consultant’s report, it won’t be subject to public disclosure. May is scheduled to be released from the Federal Correctional Institution of Danbury, Connecticut, in August 2030. records show.
