Claus Foerster, a former broker in South Carolina, was indicted by a grand jury for defrauding clients of $2.8 million over a 14-year-period.
Mr. Foerster perpetrated his fraud from 2000 to June 2014 while employed as a financial adviser at Smith Barney & Co., Morgan Keegan & Co. and Raymond James Financial Inc., according to an indictment filed Tuesday in the U.S. District Court in Spartanburg, S.C.
The charges follow the Financial Industry Regulatory Authority Inc.'s 2014 decision to bar Mr. Foerster from the brokerage industry due to allegations he was running a Ponzi scheme.
Mr. Foerster would tell clients he had an “excellent investment” for them at SG Investments, a fictitious company that Mr. Foerster said would provide higher returns than the brokerage firms that employed him, according to the indictment. Once clients agreed to invest in SG, Mr. Foerster told them to withdraw funds from their brokerage accounts and deposit the money into their personal banking account, according to the court document. The deposits were then transferred to him in the form of a check.
Mr. Foerster kept the $2.8 million for his own use and benefit, but would sometimes provide “bogus earnings statements” to conceal his scheme and make his clients believe the money was invested and producing profits, the jury charged.
Mr. Foerster began defrauding clients at Smith Barney & Co. from 1997 to 2008, according to the indictment. He then worked at Morgan Keegan & Co. Inc. until 2012, when the firm was acquired by Raymond James.
“Raymond James terminated the employment of financial adviser Claus Foerster in 2014 after he admitted to misappropriating funds from a handful of clients through a phantom private investment fund he created outside of Raymond James and before he joined the firm,” Anthea Penrose, a spokeswoman for the St. Petersburg, Fla.-based broker-dealer, said in an emailed statement. “We have since made complete restitution to all involved clients.”
The firm fully cooperated with investigations conducted by law enforcement and regulatory agencies, she said, and “at no time did these activities involve Raymond James, its systems or other firm personnel.”