Stockbroker fraud is a rampant problem in America. If you have money, somebody else wants to take it.
Are all stockbrokers evil? Of course not. Only a few are evil while many more are honest (although being honest still doesn’t mean you know what you are doing.) The following story highlights just how evil some stockbrokers can be, however.
Meet John T. Thornes. Once the owner a brokerage firm in Redlands, California bearing his name (Thornes & Associates), Thornes has now been banned from the securitiies industry by the SEC. Unfortunately the SEC doesn’t have the Congressional authority to criminally prosecute offenders. Thornes would be a prime candidate for top honors if there was a Stockbroker Fraud Hall of Shame.
What is so bad about Thornes? According to the SEC, he admitted to stealing $4.4 million from his elderly mother and an Alzheimer’s patient. Where did the money go? Allegedly to buy luxury goods for friends and to pay gambling debts.
The money for his crime spree comes from brokerage accounts under his control. One account comes from a trust set up to provide scholarships to aspiring students. The other account was set up to provide for an ailing 77 year old Alzheimer’s patient.
While Thornes was draining the accounts, the pilfered funds were being used to charter private jets, on an $800,000 vacation home, a $93,000 luxury vehicle and gambling.
Unfortunately for the victims, the money is gone.
The SEC imposed $9 million in penalties. The SEC’s order comes on the heels of a $4.5 million restitution order from the Financial Industries Regulatory Authority (FINRA). The victims likely won’t see much, however. (According to records obtained from FINRA, Thornes has not complied with FINRA’s settlement order.)
A particular problem with very small brokerage firms is the lack of an independent compliance officer or second set of eyes. Most brokerage firms have a dedicated compliance team in place to better protect the public from predators like Thornes. Certainly a compliance department doesn’t stop all instances of stockbroker fraud but is a huge deterrent. In the case of Thones & Associates, John Thornes was stockbroker, compliance officer and apparently thief as well.
Another problem with very small broker dealers is their inability to pay a settlement or arbitration award. Brokerage firms are responsible for the fraud or misconduct of their employees. That offers a second layer of protection. Even if a bad broker goes to prison or bankrupt, the firm must still pony up any losses. When the bad broker owns the firm, however, there is no protection.
Even if Thornes was insured, it is doubtful that the insurance company would pay. Intentional acts are usually excluded from coverage.
We hate to see stories like this. Stockbroker frauds occur daily… brokers who churn accounts to earn more commissions, brokers who make unsuitable recommendations, brokers who fail to do due diligence on the investments they recommend, brokers who are motivated more by their profits than the financial safety of their clients… and yes, stockbrokers who steal. In most cases we can help victims get back their hard earned money. Not every story has a good ending, however.
Most cases against stockbrokers proceed by binding arbitration before FINRA. The arbitration process is generally much quicker than a lawsuit but punitive damages are harder to obtain.
Most stockbroker fraud cases can be handled on a contingent fee basis meaning the lawyer doesn’t get paid unless their is a recovery. Particularly in the case of small brokerage firms, our advice is not to wait. Many firms can sustain the loss created by the first one or two claims. Those who wait, however, often are left with no recovery.
Are you the victim of stockbroker fraud or bad advice from a financial professional? Give us a call. For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct).
MahanyLaw – America’s Fraud Recovery Lawyers