Scottrade settles charges it failed to oversee trades by scam artist

Scottrade Inc. has agreed to pay a $100,000 fine to the Financial Industry Regulatory Authority Inc. for failing to supervise $8.4 million in unregistered stock sales by a lawyer who was later convicted for running a $110 million securities fraud scheme.

Finra alleged that Scottrade allowed James W. Margulies, formerly the chief financial officer, general counsel and a board member of Industrial Enterprises of America Inc., to improperly sell $8.4 million in unregistered stock of the firm from February 2005 to October 2007.

“Scottrade failed to conduct an independent inquiry to determine whether the shares deposited were freely tradable,” Finra said in the settlement agreement, dated Tuesday and released this week.

Scottrade settled without admitting or denying the charges. Spokespersons for the firm were not immediately available Friday.

In 2011, Mr. Marguilies was convicted by the Manhattan (New York) district attorney for looting Industrial Enterprises of more than $90 million worth of illegally issued securities, and stealing more than $20 million from investors. He was sentenced to a seven-to 21 year prison term.

Prosecutors said Mr. Marguilies spent more than $7 million in ill-gotten gains on luxury items, such as a $500,000 vacation-club membership, a $350,000 ring for his wife, private jet travel and million-dollar-plus homes.

In March, WFG Investments Inc. settled a similar case with Finra, agreeing to pay a $200,000 fine related to the Industrial Enterprise pump-and-dump operation.

Enforcers at Finra claimed WFG failed to supervise sales of nearly $18 million of the company’s restricted stock in accounts opened by Mr. Margulies.