FINRA fined MTG LLC aka Betterment Securities $400,000 for robo-advisor branch Betterment LLC's failure to comply with FINRA and SEC rules, including the Customer Protection Rule that requires carrying firms to protect customer assets. For instance, Betterment allegedly structured transactions differently on certain days in order to reduce its Customer Reserve Account obligations, a practice called "window dressing" that FINRA says benefited the firm by reducing its reserve requirement while putting customers at risk.
The digital-based Betterment LLC also allegedly failed to properly segregate customers' wholly owned securities, which similarly put investors at risk.
In related AWCs, FINRA fined Betterment principal Richard Feldman for the firm's failure to create and maintain accurate books and records, such as the firm's failure to record cash movements or failure to maintain stock records on a settlement date basis, and former Betterment President Eli Broverman for similar violations.
AWC #2015048047101 (Betterment)
AWC #2015048047102 (Feldman)
AWC #2015048047103 (Broverman)
In addition to Customer Protection Rule violations and failure to maintain books and records, Betterment also purportedly conducted a pre-settlement withdrawal program in which the firm used customer free credit balances to fund certain pre-settlement withdrawals, which was beneficial to the firm because it allowed the firm to save on interest that may have otherwise been paid to customers.
Finally, FINRA identified Betterment's supervisory system as deficient and found that the firm made a series of errors in its reserve calculation. For instance, Betterment at one point purportedly overstated customer related debits by $816,000 while failing to account for $1.1 million in loan activity that FINRA says should have been treated as a credit.
If you have invested with the online investment firm Betterment, or with Betterment Securities' Betterment Holdings division, and the robo-advisor's failure to adequately protect your investment—including the firm's failure to pay interest, computation errors, or failure to meet other obligations pursuant to FINRA/SEC rules—has proven harmful to your financial interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.