A recent enforcement action from the Financial Industry Regulatory Authority (FINRA) answers one of the questions I get most often: “If I’m with a big name brokerage firm, I don’t have anything to worry about, right?” According to FINRA, Ralph Edward Thomas Jr., while a representative for Wells Fargo Advisors, stole money from many of his clients. One of the accounts from which he stole was set up to benefit a child suffering from cerebral palsy. According to a story from Investment News:
The broker, Ralph Edward Thomas Jr. of Reisterstown, Md., who was most recently with Wells Fargo Advisors, was sentenced to four years in prison last February and ordered to pay $838,000 in restitution.
Prosecutors from the U.S. Attorney’s Office for the District of Maryland alleged that Mr. Thomas stole the money from several customers over a number of years, including $750,000 from the child’s trust fund. The trust was funded with proceeds from a $3 million medical-malpractice settlement.
That particular fraud began in 2001, when the child’s mother visited a bank where Mr. Thomas worked at the time, according to prosecutors. The child’s mother transferred the trust account to the bank, which allowed Mr. Thomas to gain control over the funds.
Mr. Thomas would disburse about $1,000 to $1,500 of the child’s nearly $6,300 monthly annuity payments and then use withdrawal slips already signed by a relative to withdraw money and purchase cashier’s checks, payable to personal accounts he held at other banks.
Mr. Thomas joined Wells Fargo in February 2004 and was terminated in July 2010, according to Finra.
Bottom line, there is no corporate name that comes with a guarantee of safety from characters like Thomas. If you could sit down with the CEOs of the biggest brokerage firms in the world, they would tell you that they have policies and procedures designed to detect misconduct among their brokers, but only the most bald-faced liars in the group would tell you that such misconduct never occurs in their company. It happens often.
Right now, you might be imagining the horrified reaction of the higher ups upon learning of such misconduct. You might think that they’d be quick to make the victims whole and to pay for their attorney’s fees and maybe a little something for the headache. You’d be wrong. Such misconduct is so common in big brokerage firms that it doesn’t even raise the blood pressure of those who have to respond to it. It’s just another day in the office.
Vigilant investors long ago jettisoned romantic notions of the stockbroker as protector of the nest egg, and have a clear-eyed understanding of the atmosphere of pressure and ethical compromise in which all stockbrokers live. If your reaction to this story is that you don’t have to worry about your broker, you are right, unless you need the money.