Registered with FINRA as a Los Angeles-area stockbroker and the SEC as an investment adviser, former Lehman Brothers, Inc., Citigroup Global Markets, Inc. and Wells Fargo Advisors, LLC associate Philip Horn last year pled guilty to several felony counts, including a number of fraud charges with tens of individual victims. In exchange for his guilty plea, prosecutors agreed to recommend an 18-month sentence.
Horn had joined Wells Fargo—then known as Wachovia Securities, LLC—in 2006 after a 13-year run at Citigroup and Salomon Smith Barney Inc. in Century City, CA. Horn started his registered career with Lehman Brothers in New York in 1992.
Prior to joining Wells Fargo, one customer complaint against Horn had been logged, a February 6, 2001 allegation that Horn failed to follow a client's direction to diversify the client's holdings in the period from 1995 through 2000. The claim was denied that June and no further complaint or dispute was filed against Horn until the present allegations of fraud associated with the above guilty plea.
With settlement amounts ranging from $18,043.65 to $537,792.70 with total damages estimated in excess of $725,000, certain patterns emerged in the FINRA disclosures, notably that Horn's clients were "not aware of certain activity in [their] accounts."
In multiple cases, the client reported (s)he "never authorized" certain account activity Horn effected, such as the purchase of Eastman Kodak bonds and other specific account-related transactions.
Yet Horn's case introduces a certain twist, a common bond and rapport Horn formed with his clients in an all-too-likely location.
According to this New York Times article, Horn used his membership at Tarzana's Braemar Country Club to recruit clients, selling fellow golfers on investing while making favorable impressions along the way. One investor had referred to Horn as "a great guy and a straight shooter."
Another, 80-year-old retiree Norman Strang, recalled pleasant dinners spent with the "friendly" Horn in Pacific Palisades, all while Horn was secretly pilfering thousands of dollars from Strang's account.
Another client hosted Horn at two weddings and had planned charitable trips with the adviser to Israel and Morocco.
Though while Horn remained cordial on the course, the "straight shooter" was found to have executed and modified trades in client's accounts without authorization, keeping the profits for himself.
For instance, one month after buying 1,000 shares of an ETF in February of 2011, Horn abruptly canceled the trade, only after the price had grown by over $8 per share. Accused of burying the transaction in over 50 double-sided pages of financial statements, Horn's actions were not discovered and his clients not alerted until October 2011, eight months after the original transaction.
Though the SEC, FINRA and securities firms have all taken and continue to take great steps to monitor their industry for misconduct, cases like Horn's prove that fraudulent activity can and does still occur.
To help prevent such fraud from happening in the future, FINRA advises clients and investors to engage in a three-step process which includes:
1. End the conversation by saying "no" to brokers and advisers who might use pressure to secure a deal.
2. Turn the tables and ask questions by ensuring the broker is licensed and all registrations are up-to-snuff. BrokerCheck and SaveAndInvest.org are useful tools with which to conduct your own research.
3. Talk to someone first by waiting before agreeing to invest. Secure a second opinion from family, friends or another financial professional before taking the plunge.
Nonetheless, as Horn's case confirms, some schemes can evade the best precautions. Further, as seen in the Brokercheck and IARD reports, even criminal pleas are not always timely reported.
If you suspect a broker or firm has engaged in unauthorized transactions or other misconduct,and such activity has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.