In January 2019, two former clients of Capitol Securities Management, Inc. won an award in a FINRA arbitration for compensatory damages for a total of $2.38 million for losses sustained from excessive trading, unauthorized fund transfers and withdrawals, and fraud.
Capitol is liable for and shall pay to Lakin $1,046,329.00 in compensatory damages, $348,428 in attorneys’ fees and $14,000 in costs. Capitol is liable for and shall pay to Patin $716,656 in compensatory damages, $238,646 in attorneys’ fees and $16,000 in costs. Capitol is liable for and shall pay to the claimants $600 as reimbursement for the non-refundable portion of the initial claim filing fee previously paid by the claimants to FINRA.
According to the award, Patin was a retired schoolteacher in her 80s who was seeking long-term growth and had a moderate risk level for investments. Patin held securities with Capitol in 2009, before she moved her investments with Mr. T (a family friend whom she knew since childhood) to Capitol in Veston, Virginia. According to the award, “The account transferred in with high margin balances. It was aggressively traded at Capitol, with much short-term trading, as well as a number of transfers of funds out of the account. The account turned over at a rate of some 13%, and a return on equity of some 20% would have been necessary for the account to break even.”
Lakin, another retired school teacher and friend of Patin, opened an account with Mr. T and Capitol through Patin. According to the award, once trading activity stopped in Patin’s account, transfers from Lakin’s account began. “As of March 2017, several dozen withdrawals from her account were made, many going to several accounts Mr. T fraudulently established at Fidelity. Mr. T engaged in a pattern of fraudulently selling securities of both Patin and Lakin in order to illegally transfer cash into other accounts.”
According to the award, “In March 2017 Capitol fired Mr. T, who shortly after mailed letters to each party confessing to years of thefts from Claimants’ and others’ accounts. Mr. T then killed himself. In his confession letter received by Capitol, Mr. T stated that he began by trying to make up losses in a customer’s account, lost more, transferred funds from others’ accounts, and lost that in risky trading. All along, he targeted victims whom he “could take money from without them noticing.” The confession estimates that Claimants lost some $1,500,000.00 through this fraudulent activity, and that he supplemented his own income by some $200,000.00 over six plus years, in addition to commissions he received on unauthorized trades.”
The retired school teachers’ accounts were subject to short-term trading, high margin balances, transfers out to other Capitol accounts and excessive commissions. Patin’s account resulted in numerous trading alerts flagged by automatic monitoring programs, which were then reviewed by Capitol’s Branch Office Manager. It was found that a number of transfers on “requests” purportedly from Patin but unsigned by her, requesting transfers to other Capitol accounts of her “daughter,” “sister” and others, but she has no daughter. The findings also stated that during the BOM review in fall of 2010, it was found that Capitol’s records reflected a net worth of $500,000, his “aunt” actually had a net worth of $2.5 million and Mr. T used this account to trade aggressively. It was found that an aggressive trading letter that was signed by Patin was likely forged by Mr. T, as well as a verbal confirmation of the change was likely not Patin.
The award also explains that Mr. T prepared and mailed to Lakin in Capitol envelopes completely fabricated Capitol statements, convincing to an unsophisticated layman, for an account which reflected non-existent balances offsetting the declining balance in the actual account. Additionally, because of unauthorized withdrawals from her 401(k) account, the IRS charged her with taxes and penalties, requiring her to retain counsel. She lost $1,050,000 due to Mr. T’s fraud.
It was found that Mr. T enriched himself by some $200,000, and “lost hundreds of thousands more in unauthorized risky trading in an attempt to cover his crimes. He allayed suspicions and covered up his activity by lies, forged signatures, moving of funds from accounts to cover unauthorized withdrawals and fabrication of false but convincing Capitol account statements showing non-existent balances.”
The causes of action relate to Claimants’ allegations that their registered representative at both Aegis and Capitol, unnamed party Mr. T, engaged in a scheme whereby he transferred funds out of Claimants’ accounts, without their consent, into other accounts at Aegis, Capitol and Fidelity, including accounts in his own name, and then sent Claimants forged account statements allegedly to create the impression that their accounts were fully funded.
A claimant asserted the following causes of action against Capitol: fraud, conversion, breach of fiduciary duty, negligence, negligent supervision, and respondent superior. Another claimant asserted the following causes of action against Aegis and Capitol: fraud, conversion, breach of fiduciary duty, negligence, negligent supervision, respondeat superior and violations of state securities laws. The claimants asserted the following causes of action against Fidelity: negligence, gross negligence and unjust enrichment. The claimant asserted a cause of action against Fidelity and Capitol for violations of state securities laws. The FINRA arbitration hearing was conducted in New Orleans, Louisiana.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Capitol Securities Management, Inc. may be liable for investment or other losses suffered by their customers.
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.