Panel: Firm was ‘cozy’ place for fraud

FSC Securities of Atlanta was taken to task in a recent NASD arbitration panel decision.
The five-year old case involved a rogue broker, Scott B. Hollenbeck, whose prior shoddy employment record included embezzling money from a church organization.
In a decision from July 2, the three-member arbitration panel wrote that FSC’s “management ineptness was broad” and that the firm ignored red flags that the broker had “selling away” issues.
The FSC created “an extremely cozy environment for a man bent on defrauding his customers,” said the decision.
The vast majority of such decisions from arbitrators give next to no details about the history or reasoning of the claim, therefore making the decision against FSC on behalf of six former clients very much out of the ordinary, industry attorneys said.
FSC has been ordered to pay those clients $299,000, plus interest, as well as $284,000 in attorney’s fees.
The panel also ordered FSC, which is a part of the AIG Advisor Group, to pay $104,000 in undisclosed costs to the claimants.
Meanwhile Mr. Hollenbeck, who was not named in the claim, faces both criminal and civil charges for his involvement in a Ponzi scheme using the sale of investments in billboards from 2001 to 2004.
Mr. Hollenbeck, who was based in Kernersville, N.C., was affiliated with FSC from June 1996 to December 2000, and then from August 2001 until May 2002.
FSC should never have hired Mr. Hollenbeck, said the panel, as his record of previous employments was riddled with red flags: He had previously been fired from as CFO of “school/church” organization for embezzling, according to the decision.
Calls to Mr. Hollenbeck’s attorney were not returned.
“We are extremely disappointed in the panel’s award and do not agree with the majority of the panel’s conclusions,” said AIG Advisor Group spokesman John Pluhowski said.
“We are surprised in the panel’s decision to include non-clients in the award.”

Related Topics: Fines/Censures, NASD