FINRA Fines Oppenheimer $3.75M in Employee Fraud Case

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By Marley Jay

NEW YORK (AP) - The Financial Industry Regulatory Authority is ordering Oppenheimer & Co. to pay $3.75 million for failing to supervise an employee who defrauded clients and the producers of a canceled Broadway musical.

FINRA ordered Oppenheimer to pay a $2.5 million fine and $1.25 million in restitution. It said Thursday the bank didn't properly investigate Mark Hotton before hiring him even though he had faced criminal charges and was the subject of seven customer complaints. He was also fired from one job for misconduct. The agency said Oppenheimer also didn't closely supervise Hotton after former business partners sued him for fraud and didn't respond to "red flags" raised by his actions.It says Hotton transferred $2.9 million from customers' accounts to entities he owned or controlled and also made excessive trades. FINRA barred Hotton from the securities industry in August 2013.

Oppenheimer, now part of CIBC World Markets, didn't immediately respond to a request for comment. FINRA says New York-based Oppenheimer didn't admit or deny the charges but consented to the agency's filing.

In October Hotton was sentenced to 34 months in jail as a result of two scams. In 2011, he promised a Connecticut real estate company that he would secure a $20 million loan in return for a $200,000 upfront fee and other payments. In the other, during 2012 he pledged to raise $4.5 million to back a Broadway production of "Rebecca," a musical based on a psychological thriller by Daphne du Maurier and an Alfred Hitchcock film, and was paid tens of thousands by the producers.

None of the investors existed, and Hotton told the "Rebecca" team that his main investor died suddenly of malaria after a trip to Africa. He then convinced them to pay $20,000 to a company he owned in order to get credit. The website for the musical says it will open in late 2015.

Hotton has also been accused of a series of other frauds totaling millions of dollars. A couple who lived near Hotton on Long Island say he stole their life savings of more than $5 million, and a debt auction company said he sold off more than $7 million in accounts from an electrical business based on inflated or false invoices.

FINRA said Oppenheimer has already paid $6 million related to claims from clients about supervision of Hotton. The $1.25 million restitution payment will go to 22 clients who suffered losses because of Hutton but didn't file arbitration claims.

The agency also said the bank was lax in dealing with other brokers, as it didn't many more than 300 required filings. On average those filings were almost eight months late, which means the public and other brokers didn't know about serious allegations made against Hotton and others.
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