Bradford Bleidt of Massachusetts is a name that rings familiar. And today (Sept. 6, 2007), the SEC instituted settled enforcement actions against Commonwealth Equity Services based in Waltham, Mass.; Detwiler, Mitchell, Fenton & Graves based in Boston; and James McCarty, a resident of South Dennis, Mass., for failing to reasonably supervise Mr. Bleidt, a former registered representative, who has, as some of you may know, engaged in a multi-million dollar fraud while they were overseeing him. At least 40 of Bleidt's victims were over age 70 at the time the Commission charged him.
Bleidt was associated with Commonwealth from 1991 to 2001 and with the Detwiler firm from 2001 to 2004. In 2004, he was charged by the SEC and the Massachusetts Securities Division with securities fraud stemming from a scheme in which he misappropriated more than $31 million from over 100 victims. Bleidt, who failed in his suicide effort, is currently serving an 11 year jail term as a result of related criminal charges brought by the United States Attorney's Office in Boston. He pled guilty to those charges in 2005.
The SEC's Order against Commonwealth finds that it failed to establish reasonable policies and procedures for responding to red flags related to Bleidt's outside business activities. In particular, the Order finds that Commonwealth staff received, but did not review, financial statements from one of Bleidt's investment advisory businesses and thereby ignored a red flag that this business was failing and he was providing significant cash infusions to keep it afloat. In addition, no one at Commonwealth followed up when Bleidt failed to disclose the source of capital for a radio station that he partially owned.
The SEC's Order against Detwiler finds that the Detwiler firm failed to adequately monitor the outside business activities of Bleidt. For example, Detwiler personnel did not reasonably investigate how Bleidt was funding his outside business activities, including his two investment advisory businesses and the radio station. In fact, these outside business activities were being funded by Bleidt with the victims' misappropriated funds. These Orders also find that Commonwealth failed to have reasonable procedures for the review of incoming mail and Detwiler failed to reasonably implement the procedures it did have.
The SEC's Order against McCarty finds that he did not follow Detwiler's procedures for the opening and review of incoming mail. The Order further finds that McCarty was not conducting the formal annual audits of each registered representative required by Commonwealth's and Detwiler's procedures and that he accepted Bleidt's explanation that the source of the money was a "trust fund" without any evidence of the existence of the trust fund and the supposed dollar amounts it contained.
The SEC Orders imposed $250,000 penalties against each of Commonwealth and Detwiler and a $50,000 penalty against McCarty. The amounts shall be paid into a single Fair Fund created pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 for potential distribution to harmed investors. Additionally, Commonwealth and Detwiler were each censured and McCarty was barred from acting in a supervisory capacity with any broker, dealer or investment adviser.
Commonwealth, Detwiler and McCarty all consented to the issuance of the Orders without admitting or denying the Commission's findings.
It should be noted that previously, Commonwealth, Detwiler and a third firm paid a combined total of more than $6 million to victims of Bleidt's fraud. Earlier this year, judgments of more than $31 million were entered against Bleidt and his investment advisory firm in the SEC's case against him.
This is an example of egregious behaviour that at least has come to some measure of justice for investors.
Source: U.S. Securities and Exchange Commission Press Release
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