SEC Issues Ameriprise Financial Cease-and-Desist Order over Failure to Detect Misappropriation and Fraud

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The Securities and Exchange Commission instituted cease-and-desist proceedings against Ameriprise Financial Services, finding that the firm failed to adopt and implement policies and procedures to protect or safeguard investor assets against misappropriation by firm representatives, including several advisors and brokers FINRA previously sanctioned for stealing from their Ameriprise clientele.

The SEC identified the rogue representatives who allegedly stole client assets as Barbara Josephine Stark, Susan Elizabeth Walker, Jeffrey Scott Davis, Justin Matthew Weseloh, and Jennifer Rebecca Lustig Johnson; FINRA previously barred all five from the securities industry.

The cease-and-desist order follows several recent disciplinary measures against Ameriprise Financial representatives, such as FINRA's bar and the eventual arrest of broker James Edward Knee for allegedly stealing over $200,000 from his elderly client.

Earlier in 2018, FBI agents arrested ex-Ameriprise broker Li Lin Hsu from Diamond Bar, California, for her role in defrauding clients by embezzling or outright stealing investor funds, while FINRA barred then-Ameriprise broker Larry Martin Boggs for churning several elderly client accounts by changing their investment objectives and risk tolerance preferences before initiating aggressive short-term trades, driving up commissions and fees while producing additional customer losses.

As relates to present SEC order #3-18642, FINRA, for instance, fined Ameriprise $850,000 in 2016 for failing to detect Weseloh's conversion, noting that the firm "failed to exercise reasonable diligence in supervising the transmittal of customer funds to third-party accounts."

In its present cease-and-desist order, the SEC agreed with FINRA's summation, writing that Ameriprise's automated surveillance tools designed to detect potential fraud by misappropriation did not function properly while a related system was inadequate, meaning that the firm failed to detect the misappropriation of at least $1 million in client funds by at least five representatives.

According to the SEC, the primary system—Amerprise's Fraud Early Detection System (FEDS)—failed to fulfill its purpose of detecting when a rogue broker had improperly replaced client addresses on an account with new addresses which the representative personally controlled.

The SEC described the second system as an automated transaction-based analysis tool, which essentially would allow the firm to identify when a representative attempted to redirect a cash disbursement or distribution from a client's account to another account, ordinarily a third-party entity controlled by the representative.

SEC wrote that Stark and Walker participated in 600 fraudulent transactions and misappropriated $1 million in client funds by forging client signatures on Ameriprise forms, such as forms used to change a client's mailing address and those used to disburse or wire transfer funds, both violations that FEDS or the analysis tool should have flagged for review.

Davis defrauded at least five Ameriprise clients, according to the report, and misappropriated $200,000 by attempting to wire himself funds from client accounts, going so far as to direct the transfers to DGP Group LLC, an entity he controlled.

Weseloh allegedly defrauded another five Ameriprise customers by misappropriating a total of $676,000 from client accounts through unauthorized wire transfers and forged client signatures on various Ameriprise forms. Although some of these forgeries were flagged, SEC wrote that Ameriprise failed to adequately investigate the potential misconduct, such that the fraudulent transfers, though flagged, were nonetheless permitted to take place.

According to the FINRA AWC barring Weseloh from the industry, his misconduct only came to light when a colleague at Weseloh's The Partners Group found evidence of attempted forgery in a trash can at the office.

Finally, Johnson allegedly misappropriated $21,000 by arranging for unauthorized check disbursements to a third-party entity called Johnson Builders, which Johnson controlled. The report states that Ameriprise knew of Johnson Builders' existence, but failed to detect the doctored documents or fraudulent misappropriation.

As suggested by the more recent Knee, Hsu, and Boggs bars and arrests, the SEC's findings of inadequate procedures at Ameriprise Financial Services may be indicative of more widespread systemic deficiencies.

If you have invested with a broker or financial adviser at Ameriprise Financial Services or at any firm whose failure to detect fraudulent activities, such as theft by misappropriation or conversation, has proven harmful to your investments, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

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