FINRA Slaps $1 Million Fine on Fidelity Brokerage for Oversight Failures

The Financial Industry Regulatory Authority (FINRA), the largest independent regulatory authority in the US, has issued a fine against Fidelity Brokerage Services LLC for $500,000 along with a penalty of $530,000 in restitution, according to a FINRA statement.

Fidelity Brokerage drew a collective fine in excess of $1 million for failing to detect or prevent the theft of a similar amount from a total of nine of its customers, eight of whom were senior citizens.

One particular individual, Lisa Lewis, had posed as a Fidelity broker, having illegally obtained her victims’ confidential information, consequently stealing customer assets via a series transfers and debit-card transactions.

Ms. Lewis was involved in the fraud between 2006 to 2013, when the scam was discovered. She had informed the victims that she was operating officially as a Fidelity broker and urged them to establish accounts at the firm.

Her ring of illicit accounts grew to over fifty at its peak. Back in June 2014, she pleaded guilty to wire fraud and received a sentence of fifteen years in prison and was ordered to pay more than $2 million in restitution.

However, the story was not over for Fidelity, after FINRA found that the group had failed to detect or to adequately follow up on multiple ‘red flags’, or signals related to Lewis’s scheme.

Fidelity also ultimately failed to detect Lewis’ seemingly consistent pattern of money movements and overlooked obvious discontinuities in telephone calls handled by its customer-service Call Center Call Center In general, a call center is defined as an office equipped with the technology and hardware to handle and process a large volume of incoming or outgoing phone calls. Call Centers today have expanded from simple telecommunication to all forms of communication, including online customer support and live chat features and the use of VOIP, including video calls. Initially, call centers were designed for selling or taking orders and for customer support. Call centers of yesterday were the precursor o In general, a call center is defined as an office equipped with the technology and hardware to handle and process a large volume of incoming or outgoing phone calls. Call Centers today have expanded from simple telecommunication to all forms of communication, including online customer support and live chat features and the use of VOIP, including video calls. Initially, call centers were designed for selling or taking orders and for customer support. Call centers of yesterday were the precursor o Read this Term.

According to Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement, in a recent statement on the fine: “Protection of senior investors is a core mission for FINRA and why we started the FINRA Securities Helpline for Seniors. This case is a reminder to firms to ensure their supervisory systems and procedures are designed to protect senior investors from harm and to adequately follow-up on red flags to detect potential fraudulent account activity.”

“We take the protection of customer accounts very seriously and regret that the fraud committed by this person, who is now serving time in prison for her crimes, included nine of our customers. We assisted law enforcement with this matter and have since taken steps to further strengthen our controls, including enhancing account monitoring and surveillance,” noted Vincent G. Loporchio, Senior Vice President (SVP) of Fidelity Investments in an exclusive statement to Finance Magnates.

"The new measures include additional surveillance of disbursements from accounts. First, we have enhanced monitoring of certain account distributions, which was already in development during the period when Lewis was committing her fraud. Second, we have implemented elder financial exploitation surveillance, which monitors various types of money movement in accounts owned by senior investors," he added.

Earlier today, FINRA appointed a new Public Governor to its Board of Governors, adding Charles I. Plosser, the former President of the Federal Reserve Bank of Philadelphia. Mr. Plosser joined FINRA’s Board of Directors having most recently served as the President and Chief Executive Officer (CEO) of the Philadelphia Federal Reserve Bank for nearly nine years up until his retirement in 2015.