Just weeks after FINRA fined the firm a record $17 million for deficiencies in its anti-money laundering program, Raymond James has found itself in hot water again over alleged compliance failures.
The latest stumbling block: An SEC-appointed receiver has filed suit against Raymond James, seeking damages for allegedly enabling a fraud scheme involving $350 million in investor funds, a Vermont ski resort and a Miami branch manager.
In April, the SEC filed charges against two businessmen, Ariel Quiros and William Stenger, for allegedly misusing about $200 million of the $350 million raised from immigrant investors for projects tied to Jay Peak, a ski resort in northern Vermont. The regulator followed up by appointing a receiver to oversee the businesses and partnerships on behalf of the defrauded investors.
The powers of Michael Goldberg, the receiver in the case, include the ability to institute legal actions to recover allegedly misappropriated or wrongly transferred funds on behalf of the investors, and the projects in which those funds were invested.
In his suit against Raymond James, Goldberg alleges that the firm failed to do its due diligence on accounts tied to the scheme, in turn facilitating the fraud while profiting from the fraudsters’ misconduct. The firm earned $2 million on margin loans it provided to Quiros, who used investor funds deposited in brokerage accounts under his name as collateral, according to Goldberg.
Raymond James' role was "neither passive nor ministerial," the suit alleges.
A spokeswoman said the firm "denies the allegations and intends to defend itself vigorously," but declined to comment further.
The suit, filed in U.S. District Court for the Southern District of Florida, details millions of dollars in transfers into and out of Quiros' accounts at Raymond James. The suit also alleges that the firm's anti-money laundering department evaluated and vetted at least one account that Quiros used at Raymond James.
It’s the second time in a month that the the firm, based in St. Petersburg, Fla., has seen its AML department come in for compliance discipline.
In mid-May FINRA fined Raymond James for deficiencies in the department's operations, charging that it lacked proper procedures and policies. Such deficiencies led the firm to miss red flags and fully investigate suspicious activities. The fines FINRA levied were the largest such fines for AML failures. The regulator says it increased the penalty because it had already sanctioned Raymond James for similar violations in 2012.
FINRA says that Raymond James' compliance programs did not keep pace with the firm's fast growth. Between 2002 and 2013, just two to six employees comprised the anti-money laundering department of the firm's employee broker-dealer. The independent side's AML department had just one employee until 2012, when a second employee was added.
The two entities shared resources and certain systems, according to FINRA.
"The firms closed thousands of alerts each month without reasonably identifying the purpose of the high-risk transactions that triggered the alerts, and AML analysts were not required to detail their rationale when closing out alerts," FINRA says.
THE NORTHEAST KINGDOM
In its complaint, the SEC says that Quiros and Stenger's scheme began in 2008 and involved hundreds of foreign investors seeking permanent residency in the U.S. through a special U.S. Citizenship and Immigration Service program. The federal EB-5 program opens a path to immigration for foreigners who wish to invest in U.S. businesses.
These immigrants made investments through seven limited partnership securities offerings, all connected to Jay Peak, a resort based in dense wilderness known as the Northeast Kingdom. Jay Peak was owned by Quiros, 58, through another company, the SEC says. Stenger, 66, served as president and CEO of Jay Peak, according to the commission's complaint, which does not name Raymond James as a party.
The SEC says that the defendants used an intricate web of account transfers to "disguise the fact that the majority of the seven projects were either over budget or experiencing shortfalls."
Quiros, a resident of Key Biscayne, Fla., used over $50 million in investors' funds for a variety of inappropriate uses, such as paying his taxes and buying a luxury condominium, the SEC alleges.
Meanwhile, investors were told that Stenger had control of their funds, even though he ceded such control to Quiros, according to authorities, who added that Stenger ignored red flags with regard to Quiros' misuse of funds.
Quiros did not return calls seeking comment, while Stenger could not be reached for comment.
According to Goldberg's suit, Jay Peak Limited Partnership's funds were held in accounts managed by Quiros' former son-in-law, Joel Burstein, a Miami branch manager for Raymond James.
Neither Burstein nor his attorney returned calls seeking comment.
Goldberg's suit further alleges that Raymond James provided margin loans to Quiros, who used assets belonging to the partnership as collateral. Goldberg says that Raymond James knew that the funds could not be used in such a manner.
He has asked for a trial by jury and unspecified damages.
It might not be the only trial for Raymond James. Earlier this month, a class action lawsuit was filed in the same district court against the firm by investors allegedly burned by Quiros and Stenger.
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