Finra slapped more than $1 million in penalties on the retail brokerage arm of Fidelity Investments on Friday for failing to protect clients, most of them senior citizens, from a woman posing as a Fidelity broker.
From August 2006 to May 2013, Lisa A. Lewis represented herself as a Fidelity broker while working with customers from a brokerage that had fired her, according to Finra. Using personal information from nine people, eight of whom where elderly, Ms. Lewis opened Fidelity accounts in their names and had all communication about them forwarded to herself.
Ms. Lewis then stole more than $1 million from the customers, according to Finra. In June 2014, Ms. Lewis pleaded guilty to wire fraud and is now serving a jail sentence.
The Financial Industry Regulatory Authority Inc. found that Fidelity failed to detect Ms. Lewis' fraud due to lax supervisory controls.
The regulator fined Fidelity Brokerage Services $500,000 and ordered the firm to pay $530,000 in restitution. The firm neither admitted nor denied the charges.
Finra said Fidelity failed to react to “red flags” regarding the accounts Ms. Lewis set up, such as the fact that the unrelated accounts shared common email or postal addresses or phone numbers with Ms. Lewis. The firm also missed unusual money movements in the accounts.
The penalties against Fidelity reflect Finra's emphasis on protecting senior investors, according to a Finra official.
“This case is a reminder to firms to ensure their supervisory systems and procedures are designed to protect senior investors from harm and to adequately follow-up on red flags to detect potential fraudulent account activity,” said Brad Bennett, Finra executive vice president and chief of enforcement.
Fidelity said it has already taken steps to correct problems that were highlighted in the case. It has implemented additional account surveillance, including a system specifically designed to detect money movement in accounts owned by senior clients.
“Both of these measures are aimed at identifying and preventing precisely the type of fraud [Ms.] Lewis committed,” Adam Banker, a Fidelity spokesman, said in a statement. “We have also further enhanced our employee awareness and training about issues that can affect senior investors, including elder financial exploitation.”
Earlier this year, Finra established a helpline for seniors who believe they are getting ripped off by their brokers. On Thursday, the North American Securities Administrators Association Inc. launched a senior-protection website.