Securities Regulation Daily CCO wired elderly client’s funds following email flagged as ‘spam’
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Tuesday, June 6, 2017

CCO wired elderly client’s funds following email flagged as ‘spam’

By John M. Jascob, J.D., LL.M.

The Texas Securities Commissioner has fined a Chicago-based broker-dealer $5,000 after the firm’s chief compliance officer sent more than $91,000 in unauthorized wires to fraudsters who compromised the email account of an elderly client. The commissioner found that PTI Securities & Futures, L.P. violated its written procedures when it failed to verify the signatures on the wire distribution requests and did not discuss discrepancies with the client before transferring the money (In the Matter of the Dealer Registration of PTI Securities& Futures, L.P., June 2, 2017).

"Cyber-fraud is on the rise, and state-registered investment advisers and other registrants should establish up-to-date procedures to assess the risks of access to client information," said Commissioner John Morgan in a news release.

According to the commissioner’s order, the CCO sent the wires after receiving an initial email in February 2015 from the hacked account of a 75-year-old client residing in Texas. The email contained the subject line "[SPAM] Hi Dan" and asked the CCO to "please email me the cash balance on all my account." After responding with the account balance, the CCO transferred $45,780 from the client’s IRA account to an individual in Louisiana, even though the wire transfer form listed a false Social Security number, birth date, and signature. The CCO did not speak with the client prior to processing the distribution.

In March 2015, the CCO wired money a second time from the client's IRA to the same individual in Louisiana, then to another person in Alabama. The client was unrelated to the recipients of the wire transfers and had never wired money to them before. After the third wire transfer was rejected by the receiving bank, the CCO finally called the client, who informed the CCO that he did not make the wire transfer requests and did not know anything about the wires.

The commissioner’s order found that the broker-dealer did not establish written supervisory procedures related to how its agents should verify that email instructions to wire funds were genuine. The firm’s written supervisory procedures also did not cover how agents should address "red flags" related to electronic transfer requests.

The order is No. IC-17-CAF-01.

Companies: PTI Securities & Futures, LP

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