FINRA fines Oppenheimer $3.75M in employee fraud case

AP News
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Posted: Mar 26, 2015 2:19 PM

NEW YORK (AP) — The Financial Industry Regulatory Authority is ordering Oppenheimer & Co. to pay $3.75 million for failing to supervise an employee who defrauded clients and the producers of a canceled Broadway musical.

FINRA ordered Oppenheimer to pay a $2.5 million fine and $1.25 million in restitution for failing to investigate Mark Hotton before hiring him, failing to supervise him after he was hired, and overlooking "red flags" like transfers of large sums out of his clients' accounts.

Hotton is now serving a 34-month prison term for two different frauds, one of which involved the producers of a musical version of the psychological thriller "Rebecca."

Hotton faced criminal charges and was the subject of seven customer complaints before he was hired, FINRA says, and while working at Oppenheimer he transferred $2.9 million out of clients' accounts, sending the money to entities he owned and then made excessive trades with it. The agency also says Oppenheimer was late with more than 300 mandatory filings, depriving the public and other brokers of information about Hotton and other employees.

Hotton was sentenced to prison in October as a result of two scams. In 2011, he promised a Connecticut real estate company that he would secure a $20 million loan in return for a $200,000 upfront fee and other payments. Then, in 2012, he pledged to raise $4.5 million to back a Broadway production of "Rebecca," a musical based on a psychological thriller by Daphne du Maurier and an Alfred Hitchcock film, and was paid tens of thousands by the producers.

None of the investors existed, and Hotton told the "Rebecca" team that his main investor died suddenly of malaria after a trip to Africa. He then convinced them to pay $20,000 to a company he owned in order to get a line of credit.

When securities firms hire an employee, they have 30 days to disclose detailed information about the new employee's background, including his or her work history, regulatory actions involving the employee, and criminal arrests or convictions. The disclosures are made public and they have to be kept up to date if, for example, regulators take action against the person or if criminal charges are filed. The firms must also disclose when employees leave.

On average, Oppenheimer's 300 filings were eight months late.

Oppenheimer, which didn't admit or deny the allegations, said Hotton left the company six years ago and that it has improved its hiring and supervision policies and regulatory filings since then.

FINRA said Oppenheimer has already paid $6 million related to claims from clients about supervision of Hotton. The $1.25 million restitution payment will go to 22 clients who suffered losses because of Hotton but didn't file arbitration claims.

FINRA permanently barred Hotton from the securities industry in August 2013.

The "Rebecca" team is still trying to keep the play alive, and the website for the musical says it will open in late 2015.