The Financial Industry Regulatory Authority (FINRA) has sanctioned and barred broker Claus Foerster (Foerster) concerning allegations that Foerster solicited firm customers to invest in a fictitious fund “S.G. Investments” and converted approximately $3 million in funds from 13 customers for his personal use. FINRA rules provide that no person associated with a member shall make improper use of a customer’s securities or funds.
Foerster entered the securities industry in 1988 when he associated with J.C. Bradford & Co. Between 1997 and 2008, Foerster was associated with Citigroup Global Markets, Inc. (Citigroup). From 2008 until February 2013, Foerster was associated with Morgan Keegan & Co. Inc. Thereafter, and until June 2014, Foerster was last associated with Raymond James & Associates, Inc., (Raymond James) when his registration was terminated based on the conduct described by FINRA in the AWC.
FINRA alleged that beginning in 2000, Foerster solicited securities customers to invest in an entity called S.G. Investments. S.G. Investments was marketed by Foerster to investors as an income-oriented investment. As part of Foerster’s scheme, FINRA alleged that he instructed customers to move funds from their brokerage accounts to their personal bank accounts via wire or electronic funds transfer. After that, FINRA found that Foerster would then instruct the customers to write checks from their personal bank accounts payable to “S.G. Investments.” FINRA determined that S.G. Investments was not an investment fund but instead a bank account owned and controlled by Foerster. According to FINRA, Foerster hid his scheme by providing customers with fictitious account statements. In addition, FINRA found that in at least two instances Foerster provided customers with purported dividend payments on a monthly basis in typical Ponzi Scheme fashion. Through these actions, FINRA found that Foerster converted approximately $3 million from 13 customers.
The allegations against Foerster may constitute a “selling away” securities violation. Selling away violations occur when financial advisors solicit securities, promissory notes, or other investments that were not approved by the broker’s affiliated firm. Selling away occurs because investors trust the inherit integrity of financial professionals or the name brand of the brokerage firm that they work for. Brokerage firms owe investors a duty to properly monitor and supervise their employees and to establish and maintain a system to supervise the activities of each registered representative that is reasonably designed to achieve compliance with the securities laws.
Selling away often occurs when brokerage firms either fail to put in place a reasonable supervisory system. Many times there obvious “red flags” of misconduct that are overlooked or not properly followed up on. Unfortunately, in many cases he investor does not learn that the broker’s activities were wrongful, sometimes for many years, until the investment scheme is publicized or the broker simply disappears and stops returning client calls.
Investors who have suffered losses through Forester’s misconduct may be able recover their losses through arbitration. The attorneys at Gana LLP are experienced in representing investors in cases of selling away, Ponzi schemes, and brokerage firms failure to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.