The Securities and Exchange Commission announced it has charged H.D. Vest Investment Services with violating critical customer protections rules after failing to adequately supervise representatives who misappropriated customer funds. In anticipation of the institution of the SEC proceedings, H.D. Vest submitted an Offer of Settlement, which the SEC accepted. H.D. Vest agreed to settle the charges by paying a $225,000 financial penalty and retaining an independent compliance consultant to improve its supervisory controls.
In May 2013, Lewis J. Hunter, who was a H.D. Vest registered representative from November 2006 to October 2011, entered into a settlement with the SEC stemming from his misappropriation of unds from two elderly customers. See In the Matter of Lewis J. Hunter, Exchange Act Rel. No. 69668 (May 30, 2013) (settled Order). As part of his fraudulent scheme, Hunter conducted unauthorized and deceptive wire transfers from customer brokerage accounts to bank accounts and other brokerage accounts in the name of his outside business activities. At the time of Hunter’s actions, H.D. Vest did not identify the unauthorized and deceptive wire transfers to Hunter’s OBAs and did not discover Hunter’s misappropriation of customer funds. H.D. Vest first learned of Hunter’s actions after complaints from the victims.
In its charges against H.D. Vest, the SEC found that H.D. Vest has more than 4,500 registered representatives typically working as independent contractors who also operate tax businesses outside of their securities businesses. H.D. Vest failed to have proper policies and procedures in place to monitor its representatives’ outside business activities, and as a result some representatives used their outside businesses to defraud brokerage customers in such ways as transferring or depositing customer brokerage funds into their outside business accounts, according to the SEC.
The SEC also found that H.D. Vest failed to follow customer protection rule after the wrongdoing by its representatives. Pursuant to these rules, H.D. Vest was required to make certain calculations and, if necessary, deposit funds into a reserve account for the benefit of customers who were harmed by the representatives’ misconduct. H.D. Vest neither made the calculations nor maintained a reserve account.
“H.D. Vest lacked sufficient supervisory controls to track the transfer of customer funds to outside entities controlled by its registered representatives,” said David R. Woodcock, Director of the SEC’s Fort Worth Regional Office, in an SEC statement. “Firms like H.D. Vest do face greater challenges in supervising their representatives in numerous small branch offices spread across the country, but that doesn’t excuse the firm from establishing adequate policies and procedures to address those challenges.”
If you were a client of Hunter or H.D. Vest, and have suffered investment losses or financial irregularities, please contact Sonn Law Group to explore your legal options.Sonn Law Group is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies. To learn more, please call us at 844-689-5754 or complete our “contact form.”