It’s not even the dog days of August and yet another big firm is paying FINRA big hot fines resulting from poor branch oversight.
The headline news is that Prudential Annuities Distributors failed to prevent the theft of $1.3 million from an elderly customer’s variable annuity account. At issue is that the firm repeatedly failed to adequately investigate “red flags” that Travis A. Wetzel, a former registered sales assistant at LPL Financial (and now a convicted felon) was transferring money from an 89-year-old customer’s Prudential account to a third-party bank account in Wetzel’s wife’s maiden name.
Bad things happen to firms with inadequate supervisory procedures and policies
And FINRA means it. According to Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, “Firms must ensure that their supervisory systems and procedures are designed to recognize and follow up on red flags. [In this instance,] there were numerous red flags raised over the course of this scheme, and Prudential Annuities Distributors’ failure to adequately respond to them allowed an unscrupulous actor to prey on an elderly customer.”
Just doing as asked…executing as requested…whoops!
FINRA found that from July 2010 until his misappropriation was discovered in September 2012, Wetzel submitted 114 forged annuity withdrawal requests to Prudential Annuities — four to five withdrawals per month. The requests asked that Prudential Annuities wire funds from the elderly customer’s account to the aforementioned third-party account.
Prudential Annuities did just that, repeatedly following Wetzel’s instructions without adequately investigating a host of issues that should have raised an alarm. Even when every transfer request Wetzel submitted triggered an alert. Prudential Annuities simply reviewed the requests and determined erroneously that the withdrawals appeared legitimate. So it did not investigate further. Even when during six quarterly audits, Prudential Annuities personnel reviewed some of the withdrawals and noticed the funds were sent to a third party, reviewers still concluded that the activity appeared to be legitimate.
Inadequate supervisory procedures and controls cost $$$!
$950,000 to be exact. FINRA found that inadequate supervisory procedures and controls contributed to Prudential Annuity’s failure to detect and prevent Wetzel’s fraud. In particular, the Authority noted that the firm lacked sufficient supervisory procedures or controls to identify repeated transmittals of funds from a customer’s account to the same third-party payee.
Stuff happens. And when the SEC, FINRA or other regulatory bodies get involved and issue shaming reports, it can make for good “rubbernecking.” Until it happens to you.
Don’t be that firm. You know, as a Broker-Dealer, RIA, or FCM, you and your compliance team must create, implement, maintain, confirm, and review written supervisory policies and procedures to ensure regulatory compliance, reduce reputational exposure and avoid related financial consequences.
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If you are charged with compliance, you know you’re facing increased oversight which requires you to juggle more paper, more files, more data. Regulatory compliance requirements are getting more all-consuming and complying can often times feel like an undertaking without end. If your compliance function is under pressure to do more with less, what are the options?