During the relevant period, Ameriprisehad an intricate compliance and supervisory system in place thatincluded automated surveillance tools to detect fraud. Buttechnical glitches allowed the criminals to avoid instantdetection. All were immediately fired upon discovery of the crimes.(Photo: Shutterstock)

Ameriprise Financial Services Inc. has agreed to a $4.5 millionsettlement with the Securities and Exchange Commission for failingto catch five criminals among the firm's ranks of roughly 9,700registered advisors and brokers before those criminals couldperpetrate crimes.

Two of the criminals—a mother-daughter team operating out of aMinnesota franchise—stole $1 million from retail clients through600 fraudulent transactions between 2008 and2013.

Another Virginia rep, who carried a felony robbery convictionfrom his adolescence, stole $200,000 from five clients. An Ohiorep, hired by Ameriprise in 2010, stole $373,000 from clients overa two-year span.

Ameriprise caught and fired four of the five reps by 2013, fiveyears before the settlement with the SEC. All of the five reps havebeen indefinitely barred by FINRA, according to records onBrokerCheck, FINRA's online database of registered brokers. Threepled guilty to criminal charges in civil courts.

All told, the five reps stole about $1.6 million—most between2008 and 2013—before Ameriprise discovered the crimes. All wereimmediately fired upon discovery of the crimes.

During the relevant period, Ameriprise had an intricatecompliance and supervisory system in place that included automatedsurveillance tools to detect when firm representatives mightbe engaging in fraud.

But technical glitches in the firm's programs allowed thecriminals to slip through the cracks.

One of those tools, the Fraud Early Detection System, wasdesigned to flag situations where reps change clients' addresses toan address associated with a rep, an action Ameriprise's internalcontrols considered to be “suspicious and indicative of a possibleattempt to improperly gain control of the client's accounts andmisappropriate funds,” according to the SEC's order.

“Ameriprise considered attempts to replace a client's addresswith an address controlled by a representative to be suspicious andindicative of a possible attempt to improperly gain control of theclient's account and misappropriate funds,” the order says.

But the FEDS program failed to flag fraudulent address changeswhen the criminals' forgeries did not completely synch up withreps' addresses in the database. For instance, an address changerequest with the abbreviation “Ave.” may not have been detected ifthe database listed the corresponding rep address under“Avenue.”

Ameriprise found the glitch in the FEDS program by December of2013.

Another oversight tool failed to flag fraudulent wire transfers,due to what the SEC described as a “limitation” in the technology'sdesign.

In agreeing to the settlement, Ameriprise neither admitted nordenied the SEC's findings.

“We are pleased to bring this matter to a resolution,” said JohnBrine, senior vice president of corporate communications forAmeriprise, in a statement to BenefitsPRO.

“The actions of these five individuals – which happened yearsago – were in clear violation of our policies and resulted in theirimmediate separation from the firm. We fully reimbursed clients whowere impacted after the activity was discovered. We continuallyreview and enhance our compliance program to better detect thistype of prohibited activity,” added Brine.

The SEC provides detailed information of the crimes—includingthe names of the criminals—and the failures in the Ameriprise'soversight controls.

“The SEC's order found that Ameriprise has implemented a newsystem to safeguard clients' money and that Ameriprise reimbursedall impacted clients for the losses they incurred due to themisconduct of the five representatives,” the agency said in a pressrelease.

Barbara J. Stark and Susan Walker

Stark, a franchise operator in Minnesota, and her daughter,Walker, a rep who helped administer the retail book of business,engaged in approximately 600 fraudulent transactions between 2008and 2013, misappropriating $1 million in client funds.

The two forged client signatures on Ameriprise forms, includingrequests to change the address of clients and disburse funds viacheck and wire transfers. Money was sent to Stark and Walker'saddresses, which had been disclosed to Ameriprise, but technicalerrors in the oversight system failed to recognize the unauthorizedaddress changes. Compliance supervisors also failed to detect theforged signatures.

Ameriprise fired both in March of 2013 after an inquiry fromstate regulators. FINRA indefinitely barred both the followingJuly. In 2014, Walker pled guilty to mail fraud and tax evasion andwas sentenced to 88 months in prison and fined $1 million.

Jeffrey Scott Davis

Davis, an Ameriprise rep since 2000, stole $200,000 from fiveclients by wiring money from client accounts to a bank associatedwith one of his outside businesses.

“Even though it should have been apparent that Davis wasattempting to wire money from a client account to an external partyunder his control, Ameriprise approved the transfer,” the SEC'sorder says.

Ameriprise fired Davis in July of 2013 after a client complainedof unusual account activity. Previously, he was fined by the firmfor unauthorized transactions and placed on heightenedsupervision.

Davis pled guilty to wire fraud in 2014 and was sentenced to 54months in prison.

Justin Weseloh

Employed by an Ohio Ameriprise franchise, Weseloh stole $676,000in funds from client accounts between 2011 and 2013, approximately$373,000 of which was misappropriated from Ameriprise accounts.

Weseloh wired funds from client accounts to an external accounthe controlled.

“Ameriprise lacked a reasonable system to detect wiredisbursements from a client account to an account known byAmeriprise to be associated with or controlled by therepresentative,” the SEC said in its order.

Jennifer Johnson

Employed by a Minnesota franchise operator between 2009 and2016, Johnson stole $21,000 in client funds in 2014 throughunauthorized check disbursements.

Of the five reps, Johnson's fraud was detected by Ameripriseafter the firm implemented changes to its oversight controls in2013.

Her fraud was discovered in 2016 by a then newly implementedmoney movement system. Johnson was fired in February of 2016, andpled guilty in November of that year to “misconduct arising out ofher activities.” She was sentenced to five days in prison and fiveyears probation.