Posts Tagged ‘National Association of Securities Dealers’

Stockbroker Faces Both Criminal Charges and SEC In Theft

JUNE 10, 2002 VOLUME 9, NUMBER 50

Charles Zandford was a stockbroker working for Prudential-Bache Securities in 1987 when he first met William Wood. Mr. Zandford persuaded the elderly Mr. Wood to place over $400,000 in a brokerage account for investment. The money was intended to take care of not only Mr. Wood but also his developmentally disabled daughter, but when Mr. Wood died four years later it was all gone.

When he set up the brokerage account Mr. Zandford secured Mr. Wood’s authority to execute trades on the account directly, without having to get Mr. Wood’s approval on individual transactions. Over the next four years he systematically liquidated most of the account. On at least 25 occasions he transferred money from Mr. Wood’s account to other accounts for his own benefit.

The transfers were uncovered in the course of a routine examination of Prudential-Bache accounts by the National Association of Securities Dealers. Mr. Zandford was indicted on 13 counts of wire fraud, was convicted and sentenced to 52 months imprisonment and $10,800 in restitution.

The federal agency in charge of monitoring stockbroker activity, the Securities and Exchange Commission (the SEC), filed its own action after Mr. Zandford’s criminal charges were instituted. The SEC claimed that Mr. Zandford had violated securities laws as well as criminal laws, and requested that he be ordered to return $343,000 in ill-gotten gains. At the request of the SEC, the trial judge ruled that Mr. Zandford’s criminal conviction settled most of the issues in the securities violation case, and entered judgment against him.

On appeal Mr. Zandford argued that the SEC’s rules were not intended to deal with simple theft. Because the thefts had been properly dealt with as criminal actions, he insisted, there should be no further SEC enforcement proceeding. The Fourth Circuit Court of Appeals agreed and reversed the SEC’s victory.

It is not often that the United States Supreme Court gets involved in elder abuse matters, but the SEC’s petition for review in this case was granted. In a unanimous decision written by Justice Stevens, the high court reinstated Mr. Zandford’s SEC penalties.

The Supreme Court noted that the SEC’s regulations were adopted in the wake of the 1929 stock market crash, as part of a government plan to improve the general reliability and predictability of the markets. Even though Mr. Zandford’s actions really amounted to theft rather than manipulation of securities markets, they were subject to SEC regulation. The fact that the securities sales were conducted in the usual business manner did not deprive the SEC of jurisdiction, since the stockbroker’s purpose was improper. SEC v. Zandford, June 3, 2002.

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