Woodbury Financial Services
Woodbury Financial Services: Investor Complaints, Other Issues Grow
Woodbury Financial Services has become the subject of a growing number of investor complaints and enforcement actions tied to allegations of broker misconduct and supervisory failures. At the center of Woodbury's issues are investor complaints that the independent broker/dealer not only failed to supervise its representatives but also failed to conduct proper background checks that, in several instances, revealed serious conduct related charges on records of Woodbury brokers and advisers.
Based in Woodbury, Minnesota, Woodbury Financial Services is a subsidiary of The Hartford Financial Services Group of Hartford, Conn. As an independent broker/dealer, Woodbury Financial offers life insurance, variable annuities, alternative investments, and brokerage services. The company ranked third on the Minneapolis Business Journal's 2009 Top 25 list of securities broker-dealer firms with revenue of $264 million.
Woodbury's latest problems are tied to a series of formal allegations of broker misconduct and supervisory failures, the most recent of which occurred earlier this year when Arizona securities regulators accused two Woodbury Financial brokers – Mayra Angulo and Mark Islas – of defrauding at least 30 clients. In May, Woodbury reimbursed the victims of Angulo and Islas more than $2 million. In June, as part of the settlement with Arizona regulators, Woodbury Financial Services agreed to tighten its policies of looking into the financial backgrounds of its 1,750 representatives and advisors.
In addition to increasing the number of unannounced audits, Woodbury agreed to institute background checks for unreported criminal activity and credit checks to identify those securities representatives who are in financial trouble and may pose risks to clients.
The Arizona incident is far from an isolated one. Other allegations of broker misconduct and supervisory failures came to light in February 2009, when Woodbury Financial was censured and fined $50,000 by the Financial Industry Regulatory Authority (FINRA) on allegations that it to implement adequate supervisory procedures in connection to sales of variable life insurance policies.
A year earlier, in December 2008, Woodbury Financial was in the news again. This time Pennsylvania Attorney General Corbett announced charges against Steve A. Brubake, a registered representative with Woodbury, for allegedly defrauding elderly clients out of $284,000. The charges concerned an investment scheme that Brubaker reportedly devised to convince clients to invest in unregistered securities in the form of private bearer bonds issued by TWC Philanthropic Pool.
Bearer bonds are a type of unregistered stock for which no records are kept of the owners or transactions involving ownership. Whoever physically holds the bearer bond papers owns the stock or corporation. Federal law has prohibited the issuance of bearer bonds since 1982.
According to the criminal complaint, Brubaker sold unregistered securities to nine clients, who ranged in age from 57 to 83 years old. Each client was sold $30,000 worth of private bearer bonds, which Brubaker was supposed to invest on their behalf.
Brubaker was charged with six counts of theft by deception, six counts of theft by failure to make required disposition of funds received, five counts of sales and purchases under the securities act and one count of insurance fraud. He faces a maximum penalty of up to 124 years in prison and a $120,000 fine.
Finally, in April 2009, Woodbury Financial faced charges by the Securities and Exchange Commission (SEC), which fined Woodbury $65,000 for a variety of violations of Regulation S-P. Regulation S-P prohibits disclosure of non-public personal information about clients to non-affiliated third parties, such as other broker-dealers.
As reported April 10, 2009, by Investment News, Woodbury's misuse of clients' personal information was directly related to the firm's recruitment of representatives and advisers.
“Woodbury allowed recruits to provide some of their customers' non-public personal information before becoming associated with Woodbury so that Woodbury could, on the recruits' behalf, pre-populate account transfer and new account forms with certain customer information,” the SEC said in a statement.
Currently, Woodbury Financial has some 200 home office employees and more than 1,850 independent representatives throughout the United States. On Sept. 30, Patrick McEvoy became Woodbury's newest president and CEO. Most recently, McEvoy served as president and CEO of Multi-Financial Securities Corp., a Denver-based broker-dealer in the ING Advisor Network.
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