A former executive at a defunct brokerage that accused him of "fraudulent and dishonest actions" that ran it out of business must pay the firm $57 million.
IFS Securities, an Atlanta-based brokerage currently in Chapter 11 bankruptcy reorganization proceedings, won the Aug. 16
Wakefield was barred by the SEC last November and by FINRA in 2019, and he faces felony fraud charges over allegations he caused $30 million in losses through unauthorized speculative trades of U.S. Treasury bonds. Experts say there's little chance he'll be able to pay much of the award to his former employer, once one of the largest Black-owned brokerages in the country.
The $57 million in compensatory damages outstrips the combined sums of the top five largest unpaid awards in FINRA arbitration between 2016 and 2020,
Wakefield didn't enter an appearance in the IFS case to answer the firm's allegations, according to Richard Brodsky, the attorney representing the trustee for IFS in the case.
"He didn't muster a response," Brodsky said of Wakefield in an interview. "It's not surprising, given the fact that he's under indictment. If he goes to trial, he doesn't want to have anything used against him."
The trustee overseeing the reorganization isn't expecting much of the damages to be paid, Brodsky said. Noting that the company once had about 150 financial advisors, he described the case as "an extraordinarily traumatic situation, because Wakefield was extremely well-regarded" at the firm.
Wakefield had been with IFS for eight years until his August 2019 termination, eventually rising to head of the fixed income department in the firm's Chicago office. Lawyers representing him in Chicago federal court declined to comment on the case, citing a policy against discussing client matters. Wakefield has pleaded not guilty to the charges in court.
Up until three years ago, IFS was "profitable and well-capitalized" with about 20,000 customers, according to papers filed in the bankruptcy case in Atlanta federal court. It's now seeking more than $35 million in damages in a separate arbitration case against INTL FCStone, a former clearing firm to IFS that's now called StoneX. IFS owes at least $24.8 million to outside brokerages,
Alexys McKenzie, the former owner of IFS, didn't respond to an email sent to his current firm, Atlanta-based San Blas Securities. Attorneys representing him and INTL FCStone, which the firm accuses of failing to detect the fraudulent transactions, didn't respond to emails either.
"IFS was forced to begin winding down its operations in August 2019 when it suffered large losses, well in excess of its capital," the trustee's filing states. "These losses arose from numerous speculative transactions in Treasury securities (namely, short sales), for IFS' own account and using its own capital."
Brokerages, rather than third-party clearing firms, exercise supervisory responsibility over registered representatives like Wakefield. That means it will be "a struggle" for IFS to secure damages from StoneX, according to Arbitration Insight's Louis Straney, a former regulator who often serves as an expert witness. Wakefield isn't likely to pay much of the damages he now owes IFS, either, according to Straney.
"I've seen much smaller awards that are uncollectible, so this is certainly way up on the ladder of awards," Straney said. "It's very unlikely that they'll get anything."
In the arbitration case that IFS filed against Wakefield last April, the company said it was "forced to cease operations as a broker-dealer" as a result of Wakefield's "fraudulent and dishonest" conduct, the award states. In addition, IFS sought to hold him liable for $20 million in indemnification payments that it owes to third parties. A public arbitrator awarded IFS $37 million in compensatory damages and a reimbursement of the $2,700 filing fee it paid.
A federal grand jury in Chicago indicted Wakefield last November on charges of manipulative and deceptive devices and fraud. McKenzie had "expressly prohibited" Wakefield from speculative securities trading in general and U.S. Treasury bonds in particular, according to the indictment. Investors sell those securities "short" by engaging in complex transactions that bet on the bonds losing value.
Wakefield incurred massive losses and made further bets that compounded them, according to investigators. In addition, he embezzled about $820,000 from the firm by falsifying records to make it appear that the money was a commission paid by IFS' clients, the indictment states. The judge in the case set a hearing date for next June.
