Scottrade

Scottrade is Accused of Improper Sales Practices Involving Retirement Accounts

Massachusetts Secretary of the Commonwealth William Galvin has filed a complaint against Scottrade accusing the brokerage firm of engaging in improper sales practices that it knew violated the US Department of Labor’s fiduciary rule regarding impartial conduct standards. Under the rule, advisors and their firms are obligated to act in a fiduciary capacity when making investment recommendations, as well as act in their clients’ best interests.

In his complaint, Galvin is contending that Scottrade employed a culture that includes “aggressive sales patterns,” and that the firm and its agents failed to abide by its duty to Massachusetts retirees between 12/2015 and 6/2016 when it ran a number of national call nights that included the incentive of raffle tickets for those who cold called customers. Scottrade also conducted quarterly sales contests offering at least $490K in prizes. This included the “Q3 Win and Retain Sales Contest “that offered $285K and paid out $2500/agent to the top 25 branches according to percentage increase in new net assets brought in.

This week, the Financial Industry Regulatory Authority announced that it is fining Scottrade $600,000 for failing to put into place and work with an adequate anti-money laundering program that would have allowed it to identify and report suspect transactions. FINRA says that by failing to meet this requirement, Scottrade violated the Bank Secrecy Act and FINRA rules.

According to FINRA, each broker-dealer must have its own anti-money laundering procedures, policies, and controls that are customized to its business model. FINRA says that between April 2003 and April 2008, Scottrade neglected to implement an AML program that did this. Scottrade’s business model is primarily online.

Scottrade was handling about 49,000 trades daily in 2003. By 2007, the brokerage firm was handling some 150,000 trades a day.

FINRA says that the brokerage firm’s online business model and growing trade volume increased the chances of hacking, identity theft, money laundering, and securities law violations. Yet, according to FINRA Enforcement chief and executive vice president Susan Merrill, Scottrade did not even have an automatic or systematic surveillance system in place until January 2005-and she says the new system proved inadequate. Before then, Scottrade used a manual system for monitoring accounts and relied on cashiering, branch, and margin employees to identify and report possibly suspect activity.

FINRA also says that the brokerage firm’s AML procedures did not provide adequate written guidelines for employees on how to identify when a transaction was suspicious. Its AML analysts also allegedly did not receive sufficient written guidelines on detecting and probing possibly suspect trade activity.

Scottrade is not agreeing to or denying the allegations. However, the brokerage firm has agreed to an entry of FINRA’s findings. A Scottrade spokesperson says enhancements to the broker-dealer’s anti-money laundering program have now been made.

Related Web Resources:
Scottrade Fined $600,000 for Inadequate Anti-Money Laundering Program, FINRA, October 26, 2009
Anti-Money Laundering (AML) Source Tool for Broker-Dealers, SEC
The Bank Secrecy Act, IRS.gov Continue Reading ›

Articles Posted in Scottrade

Securities Cases: Massachusetts Accuses Scottrade of Running Sales Contests and Targeting Retirees, Wife of Investment Adviser Must Pay $500K in Fraud Case, and Hedge Fund Manager and His Firms Are Ordered to Pay Almost $30M for Diverting Investor Money

Scottrade is Accused of Improper Sales Practices Involving Retirement Accounts

Scottrade Fined $600,000 by FINRA for Inadequate Anti-Money Laundering Program