Ex-Merrill Lynch broker Jeffrey Kluge, pleaded guilty to two counts of bank fraud in March for swindling two banks for $8.7 million.
Jeffrey Kluge, a 25-year veteran of Merrill Lynch in St. Paul, MN, created false Merrill Lynch account statements as part of the scheme to establish multi-million dollar lines of credit, according to the plea agreement.
The plea agreement was filed with U.S. district court in Minnesota on March 29.
Kluge allegedly created a fictitious Internet domain name, and a phony email account from which he sent the falsified Merrill Lynch account statements to one of the banks, Platinum Bank. Kluge also purportedly created a fictitious identity of a purported Merrill Lynch employee, which he used in the emails with the bank, according to the plea agreement.
Jeffrey Kluge’s Alleged Scheme
Kluge’s elaborate scheme allegedly began in 2001 and ran through last November, according to the court documents.
In April 2001, Mr. Kluge allegedly obtained a line of credit for $150,000 with Alliance Bank, a Minnesota commercial bank, telling the bank he held shares in municipal bond funds sufficient to serve as collateral, according to the plea agreement. He provided falsified account statements to substantiate the purported municipal bond holdings. The false account statements to Alliance Bank hid the fact that Mr. Kluge had already pledged the assets in the Merrill Lynch accounts for loans he had obtained from the firm.
By November, the outstanding balance on the line of credit was nearly $6 million.
In May 2007, Kluge reportedly obtained a $1 million line of credit from Platinum Bank, a Minnesota commercial bank. He used the same scheme as he did with Alliance Bank, pledging assets as collateral for loans that he had already used as collateral with Merrill Lynch and concealing that information from Platinum Bank. By November, that line of credit had a balance of $2.7 million, according to the plea.
According to his FINRA BrokerCheck report, Kluge was registered with Merrill Lynch, Pierce, Fenner & Smith in St. Paul, Minnesota from 11/13/1991 – 12/08/2016. In November the state of Minnesota began an in investigation alleging breach of contract, fraud, and claim and delivery. He also is the subject of two separate Preliminary Attachment Orders by the State of Minnesota District Court (Washington Co.) alleging disposition of nonexempt property with intent to delay or defraud creditors and intentional fraud in violation of Section 570.02 of the Minnesota Statue.
The Financial Industry Regulatory Authority Inc. suspended Kluge last month for failure to provide information. Kluge has six customer complaints listed on his Broker Report. Five of the complaints include allegations of unauthorized trading.
Failure to Supervise
Brokers have a fiduciary duty to make investment recommendations that are consistent with the clients net worth, investment experience and objectives. Risk tolerance, age, and liquidity needs also need to be considered. Furthermore, brokers are prohibited from engaging in underhanded businesses practice, like churning or unauthorized trading, that violate securities laws and regulations.
When brokers abuse client accounts and conduct transactions that violate securities laws, the brokerage firm they are working with may be liable for investment losses. Brokerage firms that fail to monitor the business activities of their employees may be liable for investment losses due to negligent supervision for the misconduct of their employees.
If you suffered losses investing with Jeffrey Kluge, the attorneys of The White Law Group may be able to help you recover your losses. For a free consultation with a securities attorney, please call 888-637-5510.
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 Franklin, Tennessee.
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