Ameriprise Financial Services will pay $4.5 million to settle charges that it failed to protect more than $1 million in retail investor assets from theft by five of its representatives.
The dually registered advisor and brokerage firm accepted an offer of settlement from U.S. Securities and Exchange Commission in an administrative proceeding on Wednesday without admitting to or denying the commissions charges.
At the heart of the charges were allegations that Ameriprise did not adopt and implement policies to safeguard investor assets.
From 2011 to 2014, five Ameriprise representatives in Minnesota, Virgina and Ohio allegedly misappropriated client funds through the commission of various unauthorized acts, including forged documentation, unauthorized address changes and submitting disbursement requests without clients’ knowledge or approval. In some instances, the misappropriation involved the sale of securities, according to the SEC.
At the time of the alleged misappropriations, Ameriprise used automated surveillance tools to prevent and detect whether representatives might be committing fraud by misappropriating client funds, the SEC said.
One system, known as the Fraud Early Detection System, was designed to determine if an Ameriprise employee tried to change an address associated with a client’s account to an address controlled by the representative. However, according to the SEC's complaint, a technical error that went undetected until December 2013 prevented the system from operating properly, allowing at least one representative to perpetrate a fraud on two of her retail clients.
Another system, an automated transaction analysis tool, was intended to identify when a representative directed disbursements from a client account to an address controlled by the representative. According to the SEC, at the time of the alleged theft, the tool was unable to detect unauthorized cash disbursements via check from client accounts to addresses associated with the representative. In addition, the tool was not used to detect fraudulent movements where the disbursement was made by money transfer. As a result, Ameriprise did not detect allegedly fraudulent transfers of funds from client accounts.
The representatives responsible for the theft resigned or were terminated, and three of them have subsequently pled guilty to criminal counts of wire fraud. Ameriprise also reimbursed all impacted clients and hired a compliance consultant to review its systems and policies, implementing a new automated money movement control system to help protect its retail client assets.
In its complaint, the SEC charged Ameriprise with violations of the Advisers Act and the Exchange Act. In accepting the settlement, Ameriprise agreed to censure and a $4.5 million civil penalty.