[ by Howard Haykin ]

Edward Jones & Co., L.P. agreed to settle FINRA charges that the firm failed to stop a broker from stealing from a customer account even though that account was subject to heightened scrutiny.  Notwithstanding the heightened scrutiny on the account, a branch office assistant was able to convert $167,000 using forged letters of authorization (LOAs) to effect wire transfers out of the account without permission or authority. 

Profile of the Firm. Edward D. Jones & Co., L.P. has been a member of FINRA since 1939 and conducts a general securities business. The firm has over 11,900 registered reps working out of approximately 10,500 branches.

In a relevant disciplinary case, settled in 2010, Edward Jones paid a $200,000 fine relating to FINRA charges that the firm failed to maintain adequate supervision and controls for reviewing and monitoring all transmittals of funds from the accounts of customers to 3rd-party accounts. 

FINRA Findings and Allegations. For more than a year - 11/13/08 through 11/30/09 to be exact - Diana Villalvazo, an RR, converted over $167,000 from a customer's Edward Jones account by falsifying the customer's signature on 51 LOAs, wiring those funds to her minor daughter's bank account.  The Firm failed to adequately respond to the red flags that would have alerted it to Villalvazo's improper conduct.

During the relevant time period, the customer account was the subject of heightened scrutiny by the Firm because, among other things, there was international wire activity in the account involving wires over a million dollars and the account became subject to a grand jury subpoena and investigation by law enforcement. 

Even so, Villalvazo was able to effect the fraudulent withdrawals by using forged LOAs to effect 51 wire transfers out of the customer's account without permission or authority.  Except for two, the improper transfers were each for less than $10,000 and occurred several times per month throughout the relevant time period.  Moreover, the funds were wired to an outside bank account belonging to Villavazo's minor daughter that was not associated with the customer or his accounts at the Firm.

Edward Jones Gets Timely Reminder from Law Enforcement. Besides the firm-imposed heightened scrutiny, the firm helpful reminders to to monitor and review activity in the account.  Those came in the form of inquiries by law enforcement about the size and frequency of wire activity effected by the Firm, from the subject customer account to a 3rd-party account. 

Despite such red flags, the Firm failed to perform an adequate review of the account activity and failed to respond to red flags that would have alerted it to Villavazo's misconduct. The Firm, however, promptly reimbursed the customer for the loss resulting from Villalvazo's misconduct.

FINRA Sanctions. By virtue of this conduct, Edward Jones violated NASD Conduct Rules 2110 (for conduct before 12/5/08) and 3010(b) and FINRA Rule 2010 (forconduct after 12/14/08).  Edward Jones agreed to a $95,000 fine. 

For further details, go to:  [FINRA AWC #2010021566902] and [FINRA Disciplinary Action for Se[tember 2012].