Posted in: Greedy Brokers |
It is far too common for stockbrokers to defraud their clients, when considering FINRA received 7,137 new requests for arbitration last year. But it is not every day that a stockbroker is accused of ripping off his own firm.
Steven Mandala, a 29-year-old former broker with Merrill Lynch & Co., was charged Wednesday with defrauding his employer of $780,000. According to the firm, which is owned by Bank of America, Mandela lied about his qualifications to secure a lucrative position with Merrill Lynch in April 2009.
AOL News explains how Mandela allegedly made off with so much of Merrill Lynch’s money in less than two months.
Mandala previously worked as a stockbroker with the Maxim Group, where he reportedly made $100,000 a year. The indictment alleges that he convinced Merrill Lynch he was a partner at Maxim Group making $765,000 and managing $300 million in assets. He printed fake pay stubs, tax returns and W-2 forms to back up these claims, according to the indictment.
On the day he began work with Merrill Lynch, the company gave him the $780,000 loan as an incentive to join the firm. The loan was supposed to be paid back over eight years. Mandala deposited the money into his parents’ bank account and one week later took out $245,580 to buy a Ferrari, the indictment alleges, claiming that he rarely went to work and only brought in two or three clients worth approximately $20,000.
At the end of June, Mandala resigned by e-mail and asked that his personal belongings be thrown out. Instead, Merrill Lynch went through his belongings and found credit cards in the name of his girlfriend’s father, which had tens of thousands of dollars of charges on them. For this, he has been charged with identity theft on top of charges for grand larceny, money laundering, criminal possession of a forged instrument and falsifying documents.
As mentioned on this blog, firms love to lure new brokers with large, forgivable loans. For brokers, up-front money can be temptation to switch firms. Firms have the power to eventually call in the massive debt, should their relationship with a broker ever sour.
When Merrill Lynch realized they had loaned $780,000 to a bogus employee, they naturally wanted their money back. In addition, Merrill Lynch asked Mandala to surrender his Ferrari.
Whether or not you agree the firm deserves the money, this case sheds light on a very strange Wall Street practice.
Americans are familiar with high bonuses for Wall Street executives, and most people have heard of signing bonuses for new employees. But up-front loans ensure ties between a stockbroker and his or her employing firm, because - as with Mandela’s loan - it is to be paid back over several years.
In which other profession can a new employee lie about his resume, and receive $780,000 cash on the first day of work?
With these sort of up-front loans, firms can be rewarding questionable employees with large amounts of money. Brokers who receive these loans will also feel more inclined to stay with a firm providing poor service to its customers. In the securities industry, firms can call in these loans as punishment against unfavorable former employees.
If these allegations are true, this case will hopefully offer small relief to those who have been lied to, or defrauded, by a stockbroker. According to Merrill Lynch, one of the largest firms in the world, Mandela easily conned his way to a job offer with $780,000.
