SEC Charges Brokerage Firms and Former Branch Supervisor for Failing to Supervise Former Registered Representative Who Defrauded Customers, Including Seniors
FOR IMMEDIATE RELEASE
2007-174
Washington, D.C., Sept. 6, 2007 - The SEC today instituted settled enforcement actions against Commonwealth Equity Services, LLP, based in Waltham, Mass.; Detwiler, Mitchell, Fenton & Graves, Inc., based in Boston; and James X. McCarty, a resident of South Dennis, Mass. for failing to reasonably supervise former registered representative Bradford J. Bleidt, who engaged in a multi-million dollar fraud while they were overseeing him. At least forty of Bleidt's victims were over age 70 at the time the Commission charged him.
"The protection of investors, including senior citizens, must be of foremost importance to broker-dealers and their personnel," said Linda Chatman Thomsen, Director of the SEC's Enforcement Division. "Firms who fail to have or to enforce reasonable policies will be held accountable for their inaction."
David Bergers, Director of the SEC's Boston Regional Office, added, "Investors should be able to feel safe knowing that broker-dealers and their representatives are designing and enforcing procedures to prevent and detect fraud. The Commission will continue to aggressively pursue actions against firms and individuals who neglect these fundamental responsibilities."
Bleidt was associated with Commonwealth from 1991 to 2001 and with Detwiler from 2001 to 2004. In 2004, he was charged by the Commission and the Massachusetts Securities Division with securities fraud stemming from a scheme in which he misappropriated more than $31 million from over 100 victims. Bleidt is currently serving an 11-year jail term as a result of related criminal charges brought by the United States Attorney's Office in Boston. He pled guilty to those charges in 2005.
The SEC's Order against Commonwealth finds that it failed to establish reasonable policies and procedures for responding to red flags related to Bleidt's outside business activities. In particular, the Order finds that Commonwealth's staff received, but did not review, financial statements for one of Bleidt's investment advisory businesses and thereby ignored a red flag that this business was failing and he was providing significant cash infusions to keep it afloat. In addition, no one at Commonwealth followed up when Bleidt failed to disclose the source of capital for a radio station that he partially owned.
The SEC's Order against Detwiler finds that Detwiler failed to adequately monitor the outside business activities of Bleidt. For example, Detwiler personnel did not reasonably investigate how Bleidt was funding his outside business activities, including his two investment advisory businesses and the radio station. In fact, these outside business activities were being funded by Bleidt with the victims' misappropriated funds. These Orders also find that Commonwealth failed to have reasonable procedures for the review of incoming mail and Detwiler failed to reasonably implement the procedures it did have.
The SEC's Order against McCarty finds that he did not follow Detwiler's procedures for the opening and review of incoming mail. The Order further finds that McCarty was not conducting the formal annual audits of each registered representative required by Commonwealth's and Detwiler's procedures and that he accepted Bleidt's explanation that the source of his money was a "trust fund" without any evidence of the existence of the trust fund and the supposed dollar amounts it contained.
The SEC Orders imposed $250,000 penalties against each of Commonwealth and Detwiler and a $50,000 penalty against McCarty. The amounts shall be paid into a single Fair Fund created pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 for potential distribution to harmed investors. Additionally, Commonwealth and Detwiler were each censured and McCarty was barred from acting in a supervisory capacity with any broker, dealer, or investment adviser.
Commonwealth, Detwiler and McCarty all consented to the issuance of the Orders without admitting or denying the Commission's findings.
Previously, Commonwealth, Detwiler and a third firm paid a combined total of more than $6 million to victims of Bleidt's fraud. Earlier this year, judgments of more than $31 million were entered against Bleidt and his investment advisory firm in the SEC's case against them. The SEC acknowledges the cooperation of the Federal Bureau of Investigation, the Internal Revenue Service, Secretary of State William Francis Galvin and the Massachusetts Securities Division, the United States Attorney's Office for the District of Massachusetts, and the United States Postal Inspection Service.
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Combating financial fraud against older investors will be a focus of the Commission's second annual Seniors Summit in Washington, D.C., on Sept. 10. The Summit also will include the release of findings from regulatory examinations of 110 firms offering "free lunch" investment seminars aimed at seniors.
The SEC's Seniors Summit will begin at 10 a.m. ET on Sept. 10 and will be webcast live on the SEC Web site at www.sec.gov. The event will further examine how regulators, community organizations, and others can increasingly coordinate efforts to educate older Americans and protect them from abusive sales practices and investment fraud. Registration information and other materials about the Seniors Summit are available at: http://www.sec.gov/spotlight/seniors/seniors_summit.htm or call the SEC Office of Investor Education and Advocacy at (800) 732-0330.
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For more information, contact:
David P. Bergers
Regional Director
(617) 573-8900
Philip C. Koski
Assistant Regional Director
(617) 573-8964
SEC Boston Regional Office
Additional materials:
Administrative Proceeding 34-56362
Administrative Proceeding 34-56363
Administrative Proceeding 34-56364
http://www.sec.gov/news/press/2007/2007-174.htm
