Royal Alliance Is Stuck With A Finra Award For More Than $300K Due To Broker Running A Ponzi Scheme
A Financial Industry Regulatory Authority (FINRA) arbitration panel in Phoenix, AZ has found Royal Alliance Associates, Incorporated liable for the acts of its registered representative and ordered them to pay the Claimant $284,656 in compensatory damages, plus interest.
This case was not your usual run-of-the-mill arbitration case. It revolved around the actions of a broker for Royal Alliance, David L. McMillan, who was accused of running a Ponzi scheme. According to Mr. McMillan’s CRD Report, the SEC filed an action against him alleging that he had defrauded at least 21 investors out of more than $2.6 million in a Ponzi scheme that he operated while he was employed by Royal Alliance. After leaving Royal Alliance in December 2004, he moved to Geneos Wealth Management, Incorporated where he continued to run the Ponzi scheme until he was fired for doing so in October 2005. The scheme involved the offer and sale of fictitious investments in annuities, loans to a real estate developer and real estate loans that were to be secured by first deeds of trust. Many of those scammed by McMillan were elderly retirees. Apparently, the money that he got from investors was used to pay other investors or taken for his own personal use. The case was disposed of in 2009, resulting a fine of $120,000; a monetary sanction for disgorgement in the amount of $2,017,094 and ordering him to pay $591,113 in prejudgment interest. He was also permanently barred from ever working in the financial industry in any capacity in December 2006.
The Claimant asserted various causes of action including breach of fiduciary duty; breach of contract; fraud; fraud under Arizona and federal securities laws; negligent supervision and breach of trust, among other things. The Claimant had requested damages of not less than $365,880.
Following the three (3) day evidentiary hearing, the panel retired into executive session to consider all of the oral and documentary evidence presented in the case. The Panel concluded that Royal Alliance was liable and ordered them to pay the Claimant $284,656 in compensatory damages, in addition to interest on the $284,656 at the rate of 10% per annum from March 26, 2010 until June 28, 2011, for a total of $35,582. Finally, the Panel assessed the entire $7,200 in forum fees for the arbitration against Alliance. (FINRA# 10-05508; Maria Gritsch v. Royal Alliance Associates, Incorporated).