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NEWARK
– Wachovia Securities, LLC will offer
restitution to investors who sustained losses
when the manager of the A.G. Edwards &
Sons, Inc. branch office in Short Hills
allowed an unregistered agent to work there
and failed to prevent the recommendation
of unsuitable trading strategies to clients.
The
Consent Order between the New Jersey Bureau
of Securities (NJBOS) and Wachovia Securities
follows an investigation by the Bureau into
activities at the Short Hills office of
A.G. Edwards between March 2004 and May
2006. Wachovia Securities, which acquired
A.G. Edwards in 2007, cooperated with investigators.
In
March 2004, A.G. Edwards hired Jerette L.
Lerner to work as a registered agent in
the Short Hills branch. The Bureau of Securities’
investigation revealed that Richard Barber,
branch manager of the Short Hills branch
at the time, allowed Michael K. Jones, who
previously operated in a production team
with Lerner at another financial firm, to
occupy a desk in Lerner’s office at
the Short Hills branch office even though
A.G. Edwards declined to hire him as a registered
agent.
Although
Jones maintained regular business hours
in the Short Hills branch, Barber failed
to supervise him.
“Proper
supervision of agents is required by our
state Uniform Securities Law. As this case
illustrates, investors suffered financial
losses when the trading activities at the
Short Hills branch were not properly supervised,”
Attorney General Anne Milgram said.
In
addition to the desk, Barber provided Jones
with a telephone extension and facsimile
connection in Lerner’s office. Jones
used the telephone extension to communicate
with Lerner’s clients and used the
facsimile connection as an external internet
connection to allow him to communicate with
these clients through email. During certain
client communications, Jones accepted securities
orders, which he had Lerner execute.
Jones
used the office space of the Short Hills
branch to meet with Lerner’s clients.
Certain clients of the branch believed Jones
was a registered agent working for the firm
when, in fact, he was not employed by A.G.
Edwards.
Jones
hand wrote and delivered weekly investment
recommendations to Lerner. These recommendations
were consistent with trades made in Lerner’s
client accounts. The clients suffered losses
because the trades were unsuitable for their
risk profiles.
For
his securities activities and dealings with
A.G. Edwards clients, Jones received a portion
of Lerner’s commissions in the form
of loans which were created by Lerner and
Jones outside of the Short Hills branch.
An
assistant branch manager at the A.G. Edwards
Short Hills branch discovered certain unauthorized
trades made by Lerner. Lerner was terminated
by the firm in May 2006. Barber was removed
as branch manager in June 2008.
“The
conduct in this case exemplifies the need
for proper supervision by firms over their
agents,” said Amy Kopleton, Acting
Chief of the Bureau of Securities. “Jones
and Lerner took advantage of investors because
those who should have been supervising their
activities turned a blind eye.”
To
date, Wachovia Securities has paid $267,000
to clients to date, and has agreed to offer
an additional $120,000 to other affected
clients.
The
following Bureau of Securities employees
investigated this matter: Rick Barry, Enforcement
Chief; Michael McElgunn, Supervising Investigator;
Leon Martin, Supervising Investigator; Peter
C. Cole, Investigating Attorney; and Deputy
Attorney General Christopher Gerold.
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