SEC Charges Broker-Dealer with Failure to Supervise its Registered Representatives

The Securities and Exchange Commission (“SEC”) has charged brokerage firm H.D. Vest Investment Securities (“H.D. Vest”) with failure to adequately supervise its registered representatives, which the SEC alleges led to a violation of key customer protection rules. H.D. Vest will be required to pay a penalty of $225,000 and to retain an independent compliance consultant to improve its supervisory controls.

H.D. Vest is based in Irving, Texas and employs more than 4,500 registered representatives who typically also operate tax businesses outside of the firm. These representatives usually work as independent contractors from several branch offices spread across the country. The SEC alleges that H.D. Vest’s lack of supervision allowed its representatives to defraud elderly customers through wire transfers from the customer’s brokerage accounts into the representatives’ outside business accounts. Furthermore, H.D. Vest’s email policy allowed representatives to communicate with clients regarding investment matters with non-H.D. Vest email accounts if they agreed to forward these communications to H.D. Vest. The SEC found that H.D. Vest representatives did not forward the emails and therefore “failed to maintain all required business-related e-mails in violation of certain books and records provisions.”

While the SEC acknowledges the difficulty in supervising such a large number of representatives at so many small branch offices across the country “that doesn’t excuse the firm from establishing adequate policies and procedures to address those challenges “said David R. Woodcock (“Woodcock”), Director of the SEC’s Fort Worth Regional Office. Woodcock also stated that “H.D. Vest lacked sufficient supervisory controls to track the transfer of customer funds to outside entities controlled by its registered representatives.”

To learn more about how Jacko Law Group, PC can assist your firm with its written policies, procedures and internal controls please click here.

For more information on this and other related subjects, please contact us at info@jackolg.com or (619) 298-2880.

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