JB REED/Bloomberg News
Fidelity Investments agreed to pay more than $1 million to settle allegations that it failed to stop a Wisconsin woman who stole money from investors while posing as a Fidelity broker.
The Financial Industry Regulatory Authority said it has fined Fidelity Brokerage Services $500,000 and ordered the firm to pay nearly $530,000 in restitution after failing to prevent the theft of more than $1 million from nine of its customers, most of whom were senior citizens.
From August 2006 until her fraud was discovered in May 2013, Lisa A. Lewis told victims that she was a Fidelity broker and created accounts with them, according to a consent order by FINRA, the securities industry’s self-regulatory body.
Lewis eventually established more than 50 accounts, and raided a number of them for her own benefit. She is now serving a 15-year prison sentence, after pleading guilty to a criminal charge of wire fraud. She also was ordered to pay more than $2 million to her victims, some of whom were not Fidelity customers.
Some of the victims already received partial repayment of their losses directly from Fidelity after lodging complaints with the firm, according to FINRA spokeswoman Michelle Ong.
Many of Lewis’s clients came with her from another brokerage firm, where she had been terminated after allegations of check-kiting and improperly borrowing money from customers, the FINRA order said.
Lewis falsely told the clients that she was working for Fidelity. In reality, she was “never associated with Fidelity,’’ the regulator said. But she did open accounts with her clients at Fidelity — and the Boston-based investment giant should have detected her improper behavior, FINRA said.
“Fidelity failed to detect or adequately follow up on multiple red flags related to Lewis’s scheme,’’ the order said.
In settling the case, Fidelity neither admitted nor denied the allegations. In a statement Friday, Fidelity spokesman Vincent Loporchio said, “We take the protection of customer accounts very seriously and regret that the fraud committed by this person, who is now serving time in prison for her crimes, included nine of our customers.”
He said the firm assisted law enforcement in the case and has taken steps to enhance its account surveillance. He said Fidelity also is monitoring more closely money movements in the accounts of seniors and has provided more training to employees.
In October, the Massachusetts Securities Division charged Fidelity with unethical behavior for allegedly allowing unregistered investment advisers to use its online brokerage platform for a decade. Fidelity is fighting the case.
In the case announced Friday, FINRA said Fidelity’s systems did not flag the common identifiers among the Lewis client accounts, such as her e-mail address and phone number as contacts, as well as her being named a beneficial owner.
In addition, when Lewis called Fidelity and impersonated her clients to access their funds, customer service representatives “did not become suspicious,” even when Lewis was unable to answer account verification questions, the order said.
When call-center personnel finally checked Lewis’s broker record with FINRA, they did not see the disclosure notice about her prior job termination, the regulator said.
FINRA also suggested that Fidelity had left too much to chance by relying on an automated system to flag e-mail addresses associated with multiple accounts. At one point, the system generated 6,000 alerts, but Fidelity had assigned only one person to review them, the regulator said.
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