The Securities and Exchange Commission recently issued an order instituting administrative and cease-and-desist proceedings against former Michigan broker Lewis J. Hunter for allegedly misappropriating an estimated $300,000 from his brokerage customers that he then used to pay his own personal expenses.
In its order, the SEC’s Division of Enforcement alleges that Hunter, 44, of Detroit, while a registered representative with HD Vest Investment Securities Inc., misappropriated clients’ funds by promising guaranteed returns in both foreign and domestic bank investments.
In reality, the SEC claims that Hunter used the funds to pay for personal and business expenses. The SEC alleges that Hunter concealed his actions by making false and misleading representations to his clients, including fabricating bank documents that purported to memorialize investments.
The following can be gleaned from the reports on the SEC’s allegations:
From Nov. 15, 2006, through Oct. 19, 2011, Hunter was a registered representative at HD Vest Investment Securities Inc., doing business as H.D. Vest Investment Services, a registered broker-dealer headquartered in Irving, Texas.
While a registered representative at HD Vest, Hunter apparently became a partner in National Business Concepts LLC (NBCI), purportedly an accounting, bookkeeping, tax preparation, and business consulting and management.
In September 2010 Hunter recommended an investment in a Canadian bank to two long-time unidentified elderly clients. Hunter told one of the investors that the investment would have to be funded and held outside of the HD Vest brokerage account because the investment was not offered on HD Vest’s trading platform.
But unbeknownst to the first investor, on Sept. 27 Hunter caused HD Vest to wire $150,000 from the investor’s brokerage account into a bank account held in the name of NBCI. When confronted by the investor about the withdrawal of funds, Hunter told the client he had used the funds to purchase a guaranteed investment certificate issued by HSBC Bank Canada. The 2010 GIC purportedly guaranteed monthly interest payments of 15% for two years.
In reality Hunter did not make any investment with HSBC Bank, but had invested the money in NBCI. Hunter then wired the funds into a SmartTradeFX account in the name of NBCI. International Trade Alliance (ITA), another company controlled by Hunter, used the $150,000 from Hunter’s first client to trade foreign currencies over the course of the year. ITA earned $50 for every trade it executed. As a result of these commissions, ITA earned approximately $150,000 which Hunter transferred into bank accounts under his control. He then used the funds to pay for personal and business expenses, make purported interest payments to client 1 on the 2010 GIC and repay a personal loan that client 1 had made to Hunter.
Hunter had conducted a similar scam with client 2, starting with advising the client to make an investment in US Bank. Hunter then recommended that client 2 make a $54,000 investment outside of his account at HD Vest. The funds, however, were then wired by Hunter into a Scottrade account held in the name of NBC on Aug.13, 2010. Hunter never invested the $54,000in US Bank. Instead the funds were withdrawn from the Scottrade trade account and deposited into a NBC account. Over the next six months Hunter also used the funds to pay personal and business expenses.
A court hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the order are true; to provide Hunter with an opportunity to respond to these allegations; and to determine what sanctions, if any, are necessary and appropriate in the public interest.
The White Law Group is investigating the liability that HD Vest may have for failure to properly supervise Mr. Hunter.
When a FINRA affiliated broker conducts business outside of the firm with whom he is registered the activity may be considered “selling away.” If a registered broker “sells away” from his firm, the firm may still be liable for negligent supervision of their broker representative and may be responsible for investment losses in a FINRA dispute resolution claim.
To discuss your litigation options, please call the securities attorneys of The White Law Group at 312-238-9650 for a free consultation.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.