NEWARK – Attorney General Gurbir S. Grewal and the Bureau of Securities (“the Bureau”) within the Division of Consumer Affairs today announced that a brokerage firm headquartered in Hudson County has agreed to pay $250,000 and to revise its policies to resolve a Bureau investigation related to a financial scheme perpetrated by a registered agent of the firm.
In a Consent Order filed today, the Bureau found that Royal Alliance Associates, Inc. (“Royal Alliance”), headquartered in Jersey City, failed to adequately supervise longtime agent Gary Basralian, who misappropriated more than $1.4 million from at least three Royal Alliance customers while overseeing a branch office in Maplewood from 2009 to 2017.
Basralian, who is serving a federal prison sentence in connection with the scheme, admitted initiating numerous unauthorized wire transfers from customers’ accounts to the bank accounts of entities that he controlled, then using the funds for his own expenditures, including BMW payments and tens of thousands of dollars in credit card bills.
The Bureau revoked Basralian’s agent and investment adviser representative registrations in May 2018, one day after the U.S. Department of Justice filed federal charges of wire fraud and investment adviser fraud against him. Basralian pleaded guilty in September 2019 and was sentenced to 70 months in prison.
In a Consent Order wrapping up its investigation into Basralian’s scheme, the Bureau found that Royal Alliance’s written policies and procedures regarding wire transfers were not adequate, constituting a failure to reasonably supervise its agents, as required by law.
“Brokerage firms have a legal obligation to reasonably supervise the conduct of their agents so that rogue agents aren’t given free rein to prey financially on the firm’s customers,” said Attorney General Grewal. “We will not allow New Jersey investors to be left vulnerable by financial firms that fail to implement and enforce an adequate system of supervision to protect their customers.”
According to the Bureau’s findings, Royal Alliance’s policies and procedures prohibited third-party wire transfers except in limited circumstances. Any exceptions to the third party wire policy needed approval by the firm’s anti-money laundering department.
However, in practice, from at least February 2009 through July 2017, Basralian was able to misappropriate clients’ funds through approximately 60 unauthorized wire transfers from customers’ accounts to bank accounts of entities that he controlled. Royal Alliance processed the wire transfers without review or approval by its anti-money laundering department, the Bureau found.
“This case clearly demonstrates that there is a direct line between the misconduct perpetrated by an agent and the failure to supervise on behalf of the brokerage firm,” said Paul R. Rodríguez, Acting Director of the Division of Consumer Affairs. “New Jersey investors deserve the fullest protections under the law, including reasonable supervision of the individuals responsible for their investment accounts. Firms that fail to provide that will be held accountable.”
Royal Alliance has paid approximately $5 million in restitution to those harmed by Basralian, which include the Royal Alliance customers and others whose investments Basralian transacted while working at the firm.
Under the Consent Order filed today, Royal Alliance agreed to pay the Bureau $250,000, which is comprised of a $190,000 civil penalty, $30,000 in costs, and $30,000 that will be placed in a fund to be used for the Bureau’s investor education program.
Royal Alliance also agreed to review and revise as necessary (to the extent it has not done so already) its written policies and procedures, so that they are reasonably designed to prevent the type of conduct described in the Consent Order from occurring in the future.
”Royal Alliance may not have actively participated in Basralian’s criminal scheme, but the firm’s failure to reasonably supervise allowed it to continue for years before detection,” said Christopher W. Gerold, Chief of the Bureau of Securities. “Today we are holding that brokerage firm responsible for the role it played in failing to detect and prevent the appalling abuse of investor trust by Mr. Basralian that occurred.”
The Bureau's action was handled by Deputy Bureau Chief Amy Kopleton and Investigator Irwin Slotnick.
The Bureau is charged with protecting investors from investment fraud and regulating the securities industry in New Jersey. It is critical that investors "Check Before You Invest." Investors can obtain information, including the registration status and disciplinary history, of any financial professional doing business to or from New Jersey, by contacting the Bureau toll-free within New Jersey at 1-866-I-INVEST (1-866-446-8378) or from outside New Jersey at (973) 504-3600, or by visiting the Bureau's website at www.NJSecurities.gov. Investors can also contact the Bureau for assistance or to raise issues or complaints about New Jersey-based financial professionals or investments.