AUDITOR MORRISON’S OFFICE REQUIRES RYAN BECK & CO TO PAY $1.61 MILLION IN FINES AND RESTITUTION
Montana fraud victims receive full restitution
Montana State Auditor John Morrison announced the recent finalization of a three part settlement involving broker-dealer firm Ryan Beck & Co. and its insurance agency, Ryan Beck Life Agency, Inc. The companies paid the majority of $1.61 million in restitution, as well as fines totaling $300,000. The final piece of the settlement involved the stock broker formerly employed by the companies, Steven Grossman. The firms along with former employees were charged with multiple violations of the Montana Securities Act and insurance code for engaging in fraudulent, deceptive and illegal sales practices. The defendants were accused of bilking a Montana couple out of nearly $1 million dollars by fraudulently churning the couples’ investment accounts. Churning is an industry term that indicates massive trading that is done for the sole purpose of generating commissions, and is considered fraud on its face. The State Auditor’s Office also recently suspended the registration of Steve Grossman, the stockbroker handling the account, alleging that he fabricated evidence to cover up the wrongdoing. Grossman’s settlement included a fine of $225,000 and a permanent ban on his ability to work in Montana’s securities industry.
“This corrupt broker cost his customers nearly a million dollars,” said Morrison. "Our investigation put a stop to his fraudulent activity and got restitution for the victims. We appreciate that Ryan Beck stepped up to the plate and repaid the couple."
In the Notice of Proposed Agency Action, the Securities and Insurance Departments charged that the defendants made over $800,000 in commissions over a three-year period and were using the proceeds from the sales of the Montana couples’ blue chip investments to execute hundreds of unsuitable trades that were held for short periods. Not only were such trades unsuitable based on the couples’ investment objectives, but the accounts were being turned over at an average rate of more than 6 times a year, meaning the investors’ portfolio was bought and sold more than six times in a year. There were a total of 2,480 trades over a three-year period. Additionally, the Auditor’s office alleged the firms ignored numerous red flag warnings generated by their own compliance department, and violated company policies across the board.
During the period that this suspected illegal activity was occurring, one of the victims was undergoing cancer treatments. As they were focusing on family health matters, the couple relied on their stockbroker to manage their investments. The customers told the Auditor’s office that Grossman had assured them that he was trustworthy.
For Montanans wanting to learn more about protecting themselves from financial scams, Auditor Morrison encourages them to turn to the InvestSmart Montana program. InvestSmart Montana is an investor education project developed last year by the State Auditor's Office through a grant from the national non-profit Investor Protection Trust. The program provides informational packets and presentations around the state. The packets teach consumers how to check out a broker or investment company to ensure that they are properly licensed and doing legitimate business in Montana. They also review the most common scams and provide important information on how to recognize and detect fraud.
“Our office works hard every day to prosecute criminals and to make the victims whole", said Morrison “But we know that the best kind of law enforcement is to prevent the crime in the first place. That’s what InvestSmart is all about – giving investors the tools that they need to protect themselves from fraud”
For a calendar of upcoming presentations or to request an InvestSmart packet, logon to www.InvestSmartMT.org or call 1-800-603-6035.