The FBI is investigating two former Edward Jones brokers based in South Dakota for their role in a “selling-away” case that involved raising money from clients who invested in an alleged Ponzi scheme.
According to Jones, a client brought the matter of Gibraltar Partners Inc. to the firm's attention in March. As a result of its investigation, during which the company learned that the Justice Department was in the middle of a criminal investigation of Gibraltar Partners, Edward Jones fired the brokers, Jones spokesman John Boul wrote in an e-mail.
“A small number of Edward Jones clients have invested money in this scheme, away from the firm,” Mr. Boul wrote. “The firm is currently negotiating settlements with these clients.”
“Selling away” is one of the most common difficulties independent and franchisee broker-dealers face in their oversight of registered reps. Such reps typically operate in one- or two-man offices and have no branch manager looking over their shoulders on a day-to-day basis. Cases typically involve a broker selling a financial product that the broker-dealer did not approve or know about, with the investment vehicle blowing up and harming the client's portfolio.
Edward Jones is one of the largest brokerage firms in the country. It has more than 12,000 brokers, most of them operating from one- or two-man offices,
A group of investors in June sued Gibraltar Partners in U.S. District Court in the Southern District of New York, alleging that Gibraltar and others, including the Rahfco Funds LP, were running an alleged Ponzi scheme. Investors are seeking $100 million in damages in that suit. Jones was not named in that lawsuit. Gibraltar Partners could not be reached to comment.
Mr. Boul did not reveal the names of the former Jones brokers allegedly involved in the matter. He added: “Other investors who are not clients of Edward Jones also invested in Gibraltar” and that the firm is cooperating with federal and state authorities.
The firm said last month in a filing with the Securities and Exchange Commission that the Financial Industry Regulatory Authority Inc. and the state of South Dakota also were investigating the former reps. Minnesota, meanwhile, was investigating one of the ex-reps.
Regulators in South Dakota and Minnesota declined to comment. A spokeswoman for Finra, Nancy Condon, declined to comment. An FBI spokesman in Minneapolis, Kyle Loven, did not return a call Wednesday afternoon seeking comment.