Recently, Oppenheimer was found liable for the conduct of one of its former brokers named Mark Hotton. Hotton joined Oppenheimer in November 2005, and proceeded to fleece a number of his clients, according to financial regulators. FINRA, the Financial Industry Regulatory Authority, has filed a disciplinary action against Hotton which is still pending.
According to the complaint, Hotton outright stole almost $6 million from his brokerage customers, and directed another $2.5 million to outside businesses that Hotton was affiliated with in some way. These numbers don’t even include the millions of dollars that FINRA believes that Hotton caused by excessively trading, or churning, customer accounts to generate commissions for himself.
The level of fraud that Hotton was engaging in should be shocking if it wasn’t becoming increasingly commonplace. In 2006, a customer filed a lawsuit against Hutton after it was convinced by Hotton to invest $4 million in real estate transactions. The customer claimed that Hotton simply stole the entire investment, which was accomplished by forging contracts, forging mortgages, forging account statements, and directing the investment being made into a shell corporation that he had created with a similar name to the company that was supposed to be invested in. Ultimately, that lawsuit was settled for millions of dollars which Hotton was individually liable for. Yet this lawsuit, its allegations, and its results were never disclosed to other customers as regulations require, permitting Hotton to continue to seek new customers to bilk.
As a result, Hotton continued as business as usual. According to FINRA’s complaint against him, Hutton began stealing from other customers the same year as the previous lawsuit alleging that exact type of conduct. Hotton purportedly convinced more customers to invest in securities which did not exist, and to invest in corporations or other sham companies which Hotton controlled. At least some money was stolen by Hotton forging a letter purportedly from the client allowing him to withdrawal money from their account and transfer it out to an account he controlled. Once the money was put into the company, Hotton simply took the money and spent it for his personal uses. FINRA can account for some funds, including money going to Hotton’s personal bank accounts or paying his personal credit cards, significant money going to pay back other customers to prevent discovery of his fraud, paying his personal attorney, and other uses. Large amounts of money are completely unaccounted for.
Clearly, this was a complex and ongoing scheme involving tens of millions of dollars. For almost this entire period of time, Hotton was employed by Oppenheimer, who was responsible for supervising him and ensuring that Hotton was complying with all securities laws and regulations. There is no debate that Hotton was not complying with the securities laws and regulations, so the question becomes, what was Oppenheimer doing this entire time?
A FINRA arbitration panel decided that Oppenheimer did not fulfill its obligations to its customers and ordered Oppenheimer to pay $2.35 million in compensatory damages to one of Hotton’s clients. Compensatory damages are damages paying back a claimant for injury that he or she actually suffered. The panel also ordered Oppenheimer to pay an additional $100,000 in punitive damages. Punitive damages are damages intended to punish the wrongdoer and discourage further misconduct. In this instance, the panel decided that Oppenheimer’s conduct was so egregious that it needed to be punished above and beyond the harm suffered by the plaintiff.
Hotton himself has withdrawn from the securities industry, meaning he voluntarily relinquished his license. He has also filed for personal bankruptcy in an attempt to shield himself from the lawsuits that had been filed, as well as many more that probably would have been or will be filed. As such, it has become more difficult, although not impossible, for other Hotton client’s to recover losses from him directly. Most future suits, and there are likely many, would be directed against Oppenheimer.
If FINRA’s allegations are correct, in this level of fraud, typically many clients were mistreated, misled, or otherwise hurt without even realizing that it had occurred. As such, everyone that has ever had an account with Mark Hotton would be wise to carefully review their accounts to ensure that there were not problems. If you are or were a client of Mark Hotton, whether at Oppenheimer or elsewhere, feel free to contact the law firm of Shepherd, Smith, Edwards & Kantas LLP. All communications will be kept strictly confidential, and you will not be billed in any way for a consultation.
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