Thomas Buck, a dually registered Investment Adviser Representative who worked at Merrill Lynch for 33 years prior to being terminated in 2015, now faces prison following his guilty plea on one count of securities fraud.
According to the SEC, Buck’s scheme was uncovered when an internal compliance control system at Merrill Lynch detected $2.5 million in “excessive commissions and fees” that Buck had produced “from at least 50 customers.” Buck, the leader of a team of at least thirteen other associated individuals, had offered Merrill Lynch customers both commission and fee-based cost options, but falsely represented to numerous customers that the total annual commissions would not exceed specified limits in the customer’s commission based accounts. He also failed to inform customers when total annual commissions did begin to exceed the promised limits and falsely represented to others that total annual commissions actually remained within the promised limits. When its internal policies and procedures caused Merrill Lynch to ask Buck for confirmation that the “client has been informed of any available lower-cost options” (such as a fee based arrangement), Buck lied to his compliance team too.
Notably, the SEC’s complaint in the civil case against Buck’s cites, among other material misrepresentations and omissions, the fact that Buck “intentionally failed to inform those customers that a fee-based option could be cheaper compared to the total annual commissions the customer was paying based on trades executed in the account.” As IA watch notes in its report on the case, the citation reflects the reality that such disclosure constitutes more than a best practice; In fact, the SEC expects dual-registrants to inform clients that they could save money via a fee-based account.
Having already settled the SEC’s civil action against him, Buck now faces sentencing for Federal Securities Fraud. 18 U.S. Code § 1348 makes it a crime to “obtain, by means of false or fraudulent pretenses, representations, or promises, any money or property in connection with the purchase or sale of any commodity for future delivery, or any option on a commodity for future delivery, or any security of an issuer with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l) or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)).”
For his misdeeds, Buck faces a maximum of 25 years in prison.
Though the record of Bucks conduct leaves no doubt about the seriousness of his crimes, the range of investment adviser conduct subject to civil and even criminal penalties is varied and vast. If you are investment adviser with questions about your fiduciary duty or concerns regarding your disclosure obligations, please call us at 888.302.4594 or email us at sales@redoakcompliance.com, and we will be happy to assist.
