Miami readers of this blog have heard about several recent instances of misrepresentation or non-disclosure of material information involving particular securities. In some cases, the underlying security was a scam, as in the case of a Ponzi scheme. In other situations, a stockbroker may have been dishonest or negligent in profiling a security to a client. Either way, consumers have a right to know all publicly available information that may impact their purchase of a security, and stockbrokers or brokerage firms have a duty to disclose that information.
However, today’s story adds a twist to the usual allegations of stockbroker misconduct. According to authorities, employees at a Miami brokerage firm entered into a $66 million kickback scheme with an offshore banking official in Venezuela. The official allegedly agreed to share in the proceeds of any new business she directed to the brokers.
Federal securities laws designed to encourage a free market, where buyers enter into various securities purchases willingly and freely, according to their individual investment goals and risk tolerance. A kickback scheme thwarts that system through bribery. Such a scheme creates an inherent conflict of interest for brokers, who might no longer be able to uphold their fiduciary duty to investors because they have a personal gain in any commissions from the proposed securities transaction.
Ironically, the Miami employees may also have defrauded their co-conspirator. Instead of splitting proceeds from the new business deals 50-50, they may have lied about their profits, providing a much smaller share to their criminal partner. Federal officials have charged the individuals involved in the scheme with several felonies, including violations of the Foreign Corrupt Practices Act and money laundering.
Source: nytimes.com, “Miami Workers Bribed, and Shortchanged, Venezuelan Banker, U.S. Says,” William Neuman, May 21, 2013