The SEC has filed an action against an ex-broker for allegedly misappropriating at least $1 million from some of his clients, and apparently trying to hide his actions by transferring small sums to his personal account more than 100 times.
The agency alleges that between 2004 and 2014 advisor Eric William Johnson, 51, made approximately 115 wire transfers totaling about $1 million from client accounts to an account in his name. Since 1999, Johnson has been registered with RedRidge Securities, a Chicago-based broker-dealer, but was discharged in September, according to FINRA records.
RedRidge Securities is a boutique brokerage firm that was comprised of two advisors: Johnson and David Brent Hurt, the firm's president and chief compliance officer. At the time of his discharge, Hurt acknowledged Johnson's dismissal over the allegations. Sadly, the termination was for cause as we have reason to believe he violated several securities regulations. The violations, though serious, were isolated to five accounts out of the hundreds we manage, Hurt said.
Last month, FINRA permanently barred Johnson from the industry. Johnson, who could not be located, had no previous violations on his BrokerCheck record.
Thomas Leinenweber, a lawyer with Leinenweber Baroni & Daffada and Johnson's attorney, says, "We can't commit on the substance of investigations that are ongoing but he is cooperating with authorities to the extent that he can."
According to court documents, Johnson allegedly concealed his actions by submitting transfers between $2,000 and $5,000 from office computers not tied to his username or account. The SEC alleges that he targeted clients with large accounts and whose investments had been profitable. On at least one occasion, he sold a security in order to transfer the profits to his personal account.
How the money was spent is not yet clear, the SEC said in court documents.
The SEC has charged Johnson with violations of the Securities Exchange Act and the Investment Advisers Act.
Judge Edmond Chang of U.S. District Court in Illinois issued an order granting injunctive relief and freezing Johnson's assets, according to an SEC statement. The commission has asked for a trial by jury, court documents show.
A note entered Sept. 25 in Johnson's FINRA BrokerCheck record from RedRidge says that, "Purportedly, the FBI is investigating whether there are grounds and evidence for criminal prosecution." A spokeswoman for the FBI said the agency could neither confirm nor deny the report.
Hurt said that RedRidge is cooperating with regulatory authorities. "We are confident this is an isolated incident affecting seven of the hundreds of clients we manage," he said. "We await the results from the regulatory authorities and of course we will comply fully with their recommended actions."
RedRidge's clearing firm, RBC, notified the company of an irregularity -- that Johnson had directed a payment to his personal account, in late September, according to FINRA records. The records state: "An initial investigation revealed numerous such transactions that appear to have taken client funds for personal use, now under investigation." A spokeswoman for RBC confirmed that the firm clears for RedRidge.
Johnson earned his Series 7 in 1991, according to BrokerCheck. He was registered with several firms prior to joining RedRidge in 1999, two of which were expelled by FINRA's predecessor the NASD. Johnson was registered with Baring & Brown from May 1991 to January 1992; Emanuel and Company from January 1992 to November 1993; Stein, Shore Securities from November 1993 to May 1996; and Program Trading Corporation from May 1996 to June 1999.
According to FINRA records, Baring & Brown was expelled from the NASD in 1992 for failure to pay fines. In 2005, Program Trading was expelled from NASD membership for failure to pay fines and costs of $4,086.37, according to FINRA records.