FINRA Lawyer Blog
Lincoln Financial Securities Corp. recently settled with FINRA concerning supervisory deficiencies over a now-deceased rep (Kenneth Wayne McLeod) who purportedly ran a Ponzi scheme targeting retired government employees (Department of Enforcement v. Lincoln Financial Services Corp. – Case No. 2010025074101). A copy of the FINRA AWC can be accessed here: (FINRA AWC). FINRAs case is a follow-up to an SEC action which charged Kenneth Wayne McLeod’s estate and entities run by Kenneth Wayne McLeod with operating a Ponzi scheme promising investors with tax-free returns of 8% to 10% per year (Securities and Exchange Commission v. Estate of Kenneth Wayne McLeod, F&S Asset Management Group, Inc. and Federal Employee Benefits Group, Inc. – Case No. 10-22078, U.S. District Court, Southern District of Florida). A copy of the SEC Complaint can be accessed here: (SEC Complaint). The supervisory deficiencies noted by FINRA were:
- Lincoln Financial failed to place McLeod on heightened supervision given that Lincoln Financial hired McLeod while a state securities regulator had an open investigation.
- Lincoln Financial’s registration department failed to inform McLeod’s supervisor of the pending state investigation and the advertising review department failed to inform the supervisor of concerns over McLeod’s advertising.
- Incredibly, Lincoln Financial permitted McLeod to hire an individual for one of McLeod’s outside businesses and designate that person as his own supervisor. Lincoln Financial then failed to contact the “supervisor” to inquire about his resignation.
- Lincoln Financial failed to conduct an email review of an outside email account that McLeod used for outside business activities.
Lincoln Financial was censured and fined $175,000. Additionally, Lincoln Financial paid $5.63 million in restitution to certain investors. This case is yet another example of outside business activities coming back to haunt the broker-dealer. Broker-dealers often find themselves stuck with the liabilities of the outside business activity without ever having shared in the revenue.