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Investor Protection

Broker Used Customer’s Checks to Pay His Own Expenses

November 20, 2019

by Howard Haykin



An 87-year-old customer gave a broker signed blank checks drawn on his brokerage account at Stifel, Nicolaus & Company - to pay the customer's caregivers in the event the customer was unable to do so. The broker, instead, promptly used those checks to pay his own personal expenses.
How did that arrangement come to pass? Well, for one thing, the customer implicitly trusted the broker, who had served as his financial adviser since 1993 - when the broker was 26 years old and the customer was 63.



THE DEVIL MADE HIM DO IT.    Greed and temptation prompted the broker to convince the customer to provide him with signed blank checks drawn on the Stifel account. Then, from the get-go, and over the next 10 months, the Boynton Beach broker actively wrote checks – 33 in all - on the customer’s brokerage account. He used the funds to pay for his own personal expenses, which included: (i) his overdue homeowner's association fees; (ii) his children's summer camp fees; (iii) his attorney fees; (iv) his children’s college counselor; (v) the purchase of a 1976 Corvette automobile; and (vi) a spending allowance for his wife. All told, the broker ‘converted’ or stole over $211,000 of the customer’s funds. For his actions, the broker was terminated, barred from the industry and charged with wire fraud.



CUSTOMER SAFEGUARDS.    Elderly persons oftentimes feel they have little or no choice but to entrust their financial affairs with another person. And depending on their mental capacity, they may not recognize the risks associated with such arrangements. So, what’s an elderly person to do?  While it’s easier said than done, planning should take place before an individual reaches an advanced age, and should include assigning an independent and trustworthy friend, family member or ‘Financial Watchdog’ to monitor that person's financial affairs, including his or her brokerage and checking accounts.



[For further details click on SEC Administrative Proceeding 3-19447.]