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Scottrade Fined by Texas Securities Board For Supervisory Failures

Robert Linkin

By Robert Linkin | March 22, 2016

Complex Litigation, Securities Litigation

According to the Texas Securities Board, Scottrade Inc. has been fined $50,000 and reprimanded for failing to promptly notify certain customers when money was wired from their accounts to third parties. The Order was entered by Commissioner John Morgan on March 7. The fine will be paid to the General Revenue Fund of the State of Texas.

In 2014, the State Securities Board initiated an investigation into Scottrade’s supervision of third-party wire transfers that are processed through Scottrade’s Advisory Services platform. Scottrade provides the platform to customers who receive advisory services from independent investment advisers. The State Securities Board investigated Scottrade’s compliance with its third-party wire transfer procedures from January 2011 through July 2015.

From January 2011 to October 2013, Scottrade didn’t provide certain customers with a contemporaneous notification that funds had been transferred from their account to a third party. In one instance, Scottrade detected a fraud related to the processing of a third-party wire transfer from a Texas resident’s account. Scottrade and the Texas customer resolved the matter. Third party wires are frequently involved in securities fraud complaints. Moreover, third party wires are frequently used in Ponzi schemes as a means of laundering the proceeds of the scheme itself.

In October 2013, Scottrade implemented an automated procedure to provide customers with a notification when customer funds are transferred via wire to a third party. In failing to require a contemporaneous notification to clients of third-party wire transfers, Scottrade violated a State Securities Board rule requiring securities dealers to establish and enforce procedures designed to achieve compliance with securities laws.

In addition to the fine paid to State of Texas, Scottrade agreed to pay $50,000 to the Investor Protection Trust, a nonprofit organization that supports investor education efforts in Texas and other states.

Rob Linkin is a partner at Duggins Wren Mann & Romero, LLP, a full-service law firm located in Austin, Texas. Rob represents investors and victims of investment fraud nationwide. If you believe you are the victim of any form of broker misconduct, including by Scottrade, please contact Rob Linkin at (512) 744-9300 or via email at rlinkin@dwmrlaw.com.

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