CHATHAM, NJ (Morris County) – the Bureau of Securities (“the Bureau”) within the Division of Consumer Affairs has reached a $250,000 settlement with a Morris County broker-dealer firm to resolve a Bureau investigation related to financial misconduct by a former agent of the firm. The settlement includes $200,000 in investor restitution, Attorney General Gurbir S. Grewal said.
In a Consent Order issued today, the Bureau found that FCG Advisors, LLC (“FCG”), headquartered in Chatham, failed to reasonably supervise longtime agent Michal Allen Bressman, who defrauded his clients by engaging in a multi-year “cherry-picking” scheme that netted nearly $800,000.
“Brokerage firms have a legal obligation to reasonably supervise the conduct of their agents to prevent them from fraudulently reaping profits at their clients’ expense,” Grewal said. “FCG’s failure to fulfil that obligation allowed their agent to carry out his illegal scheme undetected for years, causing significant financial harm to investors.”
Bressman admitted to misusing his access to a designated FCG block trading “Allocation Account” to obtain nearly $800,000 in illicit trading profits over a six-year period ending in February 2018. Bressman used the Allocation Account to place trades and then, based upon a stock’s performance over that day, fraudulently diverted profitable trades to himself and family members, while unfairly assigning unprofitable trades to his customers.
The Bureau has barred Bressman from the securities industry following his criminal conviction on charges of securities fraud and investment adviser fraud brought by the U.S. Department of Justice. In August 2020, Bressman was sentenced to two years in federal prison and 18 months of supervised release. He was also ordered to pay restitution of $793,680 and to forfeit that same amount.
In a Consent Order resolving the investigation of FCG, the Bureau found that FCG had no written policies and procedures in place to detect and prevent fraudulent “post-execution” allocation of trades by Bressman, constituting a failure to reasonably supervise the agent, as required by law.
“Investors should be able to rely on the people, and firms, they trust with their investment accounts,” said Kaitlin A. Caruso, Acting Director of the Division of Consumer Affairs. “By holding FCG accountable for not doing enough to protect investors from the fraudulent conduct of its agent, we are sending a message that brokerages that fail to provide required supervision will face consequences.”
According the Bureau’s findings, Bressman placed approximately 5,000 trades from the Allocation Account, using an online trading platform provided to FCG and its brokers by FCG’s clearing firm. The platform did not provide for the orders to identify which accounts were supposed to receive the stock from the Allocation Account before the trade was executed.
When Bressman purchased stock using the Allocation Account, he typically delayed making any allocation to another account, or otherwise indicating which account was supposed to receive the resulting stock. This delay in making an allocation enabled Bressman to watch how the stock performed in the hours after the trade before deciding how to allocate it.
“FCG’s failure to implement a written supervisory procedure to detect this fraud resulted in significant financial losses to their customers and today we are holding them accountable for that,” said Christopher W. Gerold, Chief of the Bureau of Securities. “Keeping the securities industry free of financial abuses like this one is a top priority for the Bureau. We will not allow brokerage firms to shirk the supervisory duties that safeguard investors from financial predators.”
The Bureau further found that FCG also failed to make and keep accurate books, in violation of the Securities Law.
Under the Consent Order issued today, FCG agreed to pay the Bureau $250,000, which is comprised of a $50,000 civil penalty and $200,000 for restitution to victim investors.
The Bureau is charged with protecting investors from investment fraud and regulating the securities industry in New Jersey. It is critical that investors “Check Before You Invest.” Investors can obtain information, including the registration status and disciplinary history, of any financial professional doing business to or from New Jersey, by contacting the Bureau toll-free within New Jersey at 1-866-I-INVEST (1-866-446-8378) or from outside New Jersey at 973-504-3600, or by visiting the Bureau’s website at www.NJSecurities.gov. Investors can also contact the Bureau for assistance or to raise issues or complaints about New Jersey-based financial professionals or investments.