July 16, 2020
The Financial Industry Regulatory Authority (FINRA) Department of Enforcement recently approved a Letter of Acceptance, Waiver and Consent (AWC) submitted by Cadaret, Grant & Co., Inc., a brokerage firm headquartered in Syracuse, New York with approximately 800 registered representatives in approximately 423 office branches.
According to the AWC, Cadaret Grant failed to reasonably supervise one of its registered representatives who conducted numerous private securities transactions involved in a Ponzi scheme between April 2014 and March 2017. The registered representative created and controlled three worthless shell companies with no revenue or business operations and solicited them to investors promising annual returns between 4.5% and 8%. To further the Ponzi scheme and deceive investors, the registered representative gave two of the entities he created similar names to legitimate publicly traded companies. The registered representative deposited investor funds in bank accounts that he controlled and used their investments to pay for personal expenses and make interest payments to earlier investors. The Cadaret Grant registered representative scammed millions of dollars in losses from investors, including several firm customers.
FINRA Department of Enforcement asserts that Cadaret Grant failed to take reasonable steps to investigate red flags that its registered representative was involved in private securities transactions, including suspicious check deposits, public records connecting the registered representative to one of the entities in the Ponzi scheme, and a letter from a customer’s attorney stating that he was conducting an investigation into suspicious activity in his client’s Cadaret Grant account.
Consequently, Cadaret Grant violated NASD Rule 3010 and FINRA Rules 3110 and 2010. The firm consented to a censure and $200,000 fine to resolve these allegations without admitting or denying the findings.