The Securities and Exchange Commission (SEC) has issued a civil penalty of $4.5 million against Ameriprise Financial Services as part of a settlement order concerning the company’s alleged failure to prevent the theft of more than $1 million in customer funds by several of its brokers.
According to the SEC’s order, the matter concerns activities that took place between 2011 and 2014, a period during which Ameriprise allegedly failed “to adopt and implement policies and procedures reasonably designed to safeguard retail investor assets against misappropriation by the firm’s representatives.” Though the firm maintained automated systems that were designed to prevent and detect misappropriation, one such system “did not function properly and a second faced limitations” during that period, preventing the company from identifying the misappropriation by five representatives of more than $1 million in client funds.
The first system, according to the SEC, was known as the Fraud Early Detection System. Its functions included the identification of “situations where a representative attempted to change the address associated with a client’s account” to one under the representative’s control—an activity considered to be “suspicious” and potentially indicating inappropriate activity. The SEC’s order states that a “technical error” in the system was not detected until late 2013, and consequently the system “did not function properly,” namely by failing to identify instances of inappropriate address changes. As such, one Ameriprise representative “was able to perpetrate a fraud” on two retail clients without the firm’s awareness.
The second tool was an “automated transaction-based analysis tool” designed to identify such activities as a representative’s attempt to “direct a cash disbursement from a client account to an address controlled by a representative,” another activity that Ameriprise considered to be potentially indicative of misconduct. A design limitation in the tool prevented it from identifying certain unauthorized disbursements, according to the SEC, and consequently Ameriprise “did not detect the fraudulent transfer of funds from client accounts to destinations that were controlled by its representatives.” Five representatives were terminated for allegedly misappropriating customer funds. Two individuals, Barbara Stark and her daughter Susan Walker, also a representative at the firm, “engaged in approximately 600 fraudulent transactions and misappropriated $1 million in client funds,” according to the SEC. Another, Justin Weseloh, “misappropriated $676,000 in funds from client accounts, of which approximately $373,000 was appropriated from Ameriprise accounts.” Jennifer Johnson misappropriated $21,000 in funds, according to the SEC, while Jeffrey Scott Davis misappropriated $200,000 in a fraud perpetrated against five Ameriprise customers.
In connection with the above findings, the SEC has ordered Ameriprise to cease and desist from committing or causing and violations or future violations of the relevant laws, censured the firm, and issued a fine of $4,500,000. More information on these findings is available in the SEC’s order.