SEC Requests “Massive” Amount of Documents from Girard Securities Concerning Supervision of Registered Persons at Dispersed Branch Offices

InvestmentNews reported on January 29, 2015 that Girard Securities, Inc. is going to be audited by the Securities and Exchange Commission (SEC) and has requested what the Girard Securities Chairman and Chief Executive characterized as a massive request for data.  As InvestmentNews reported, the request is not routine, and instead concerns supervision of registered persons who work at Girard Securities’  approximately 136 branch offices.  Other firms have apparently received these data requests from the SEC as well.

According to the InvestmentNews article, Girard Securities agreed to be purchased by RCS Capital Corp., then run by Nicholas Schorsch.  According to the article, the deal is nearing approval from the Financial Industry Regulatory Authority (FINRA).  In December 2014, Mr. Schorsch resigned as chairman of American Capital Properties, Inc., then resigned as executive chairman of RCS Capital Corp.

Girard Securities recently accepted and consented to findings by FINRA that it did not have sufficient systems and procedures to guard against preventing third party fraudulent wire transfer activity.  In the Letter of Acceptance, Waiver and Consent (AWC) No. 2012033033901, it was described that Girard had approximately 360 registered individuals in 136 branch offices.  It also states that two clients who had recently gotten divorced had their email hacked.

According to the AWC, the hackers, through email only, were able to direct wire transfers out of the clients’ accounts.  The AWC also stated that the Girard Operations Principal who received the wire requests sought additional information by email only rather than verbally, and after getting suitable answers from the fraudsters via email, processed the wires.  The AWC stated that Girard’s own policy and procedures required that the Operations Principal request verbal confirmation of the wires.  Meanwhile, the AWC stated that an Operations Manager at Girard’s home office stated that verbal confirmation had been received.

We at Malecki Law have seen many cases involving fraud where securities firms have many branch offices.  The more branch offices a firm has, the more employees are required to perform supervision over these offices.  It becomes harder for firms to dedicate the proper amount of time and resources to supervision and compliance when they have more branch offices and those branch offices are more spread out geographically.

Despite this, merely because a firm’s office is a branch and not home office, the same amount of supervision must be performed to protect public investors from fraudulent and other wrongful conduct.  FINRA Rules, securities laws and related case law make clear that supervision over all registered persons is the “final responsibility” of the FINRA member.

Very often, the registered persons working at branch offices also perform other jobs, such as accountancy, tax preparation, real estate brokerage and other services.  These offices raise additional issues that require closer supervision, something firms often are not willing to perform.

The SEC’s inquiry into supervision of these remote branch offices should be viewed as a good sign for public investors, because the SEC’s scrutiny should cause the employing firms to ensure their policies and procedures are adequate and their supervision systems are being performed appropriately.

If you believe you have suffered monetary losses as a result of investments held in a remote branch office, please contact the attorneys at Malecki Law to determine if you have a claim for damages.