FINRA fined San Diego, California-based Girard Securities, Inc. for failing to design systems, including written supervisory procedures (WSPs), to prevent fraudulent third party wire transfer requests, including instances in which a third party impersonates a firm investor.
The investigation states that in 2011 and 2012, a number of Girard Securities clearing firms issued multiple alerts and updates concerning a rising number of e-mail fraud and wire transfer fraud cases in which fraudsters relay illicit e-mail instructions in order to effect wire transfers without the victims' knowledge or consent.
In response to this rising trend of electronic fraud, Girard adopted the procedure, "Ad-Hoc Third Party Federal Funds Wired," which stated that when the relationship between an account holder and designated wire transfer recipient is unclear, and payment exceeds $20,000, the firm shall verbally confirm Letter of Authorization ("LOA") instructions with the account holder(s) or authorized representative and a senior compliance officer shall sign an Attestation document stating that the LOA was verbally confirmed.
FINRA discovered that although Girard adopted this procedure, several investors were nonetheless victimized by a fradulent wire transfer scheme that relied on fake e-mails in which con-artists posed as the legitimate account holders.
Investigators found that, in one case, instead of communicating verbally with a firm customer to confirm one such wire transfer request, the firm representative used e-mail to confirm the wire transfer instructions.
As a result, the fraudsters, who were in control of the investor's e-mail address after purportedly hacking into the account, confirmed the redemption request and the funds were wired as instructed even though the Ad-Hoc Third Party Federal Funds Wired policy was not followed since the firm representative failed to secure a verbal confirmation.
The fraud ultimately came to light when one of Girard's clearing firm rejected three later wire transfer requests when the clearing firm's Anti-Money Laundering Department flagged the requests and found that the "customers" involved were unable to answer basic questions about the purpose of the wire transfers. The clearing firm then contacted the real customers, who were unaware of the wire transfer request activity, and upon realization of the scheme at hand, contacted Girard, who froze both customers' accounts and began an internal investigation before reimbursing the customers and amending policy to prohibit third-party and international wire transfers.
As such, FINRA found that while Girard did develop the Ad-Hoc Third Party Federal Funds Wired attestation procedure, it failed to follow the guideline, which accordingly failed to prevent a fraudulent wire transfer request from being completed.
Enforcement additionally discovered that Girard's training failed to inform employees of the reason behind the Ad-Hoc Third Party procedure nor did training state why Attestation was required.
In 2010, FINRA suspended Girard Securities broker Daniel Leland Chiddister and fined him $10,000 for allegedly impersonating a prospective customer by using the individual's social security number, date of birth and a recent account statement from an existing life insurance policy in order to request a transfer form from the individual's then-current insurance company, all without the prospective customer's knowledge, consent or permission.
In that case, investigators found that the prospective customer, in no uncertain terms, instructed Chiddister not to request transfer forms as the prospective customer was beginning an eight-week vacation and had not agreed to purchase a variable annuity with Chiddister or Girard.
If you have invested with Girard Securities or with any firm whose failure to verbally confirm a wire transfer request or other failures to follow anti-fraud or anti-money laundering (AML) procedures have led to financial activity that has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.