On August 20, 2018, FINRA issued a Letter of Acceptance, Waiver and Consent in which Buttonwood Partners, Inc. was censured and fined $50,000.  Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a supervisory system and written procedures designed to review and monitor the transmittal of funds from customer accounts to third party accounts.

According to the investigation, in March 2015, a Buttonwood customer’s funds were fraudulently transferred out of her account after her email was hacked.  In 2015, the firm had approximately 100 customers who used a bill payment service that allowed them to transfer funds regularly from the customers’ security accounts to pay invoices from third parties.  Buttonwood’s clearing firm required the use of a letter of authorization (LOA), signed by the client, for transfers larger than $100,000.  The firm did not have a written supervisory procedure to address wire transfers of customers’ funds to third-party accounts. Nonetheless, it was a well-known routine practice to ask customers who used the bill payment service to sign a blank letter of authorization form.  This was done so that they would not have to sign a new LOA for each third-party fund transfer.

Per the Letter of Acceptance, Waiver and Consent, in or about February 2015, a Buttonwood customer advised her registered agent that she would be requesting fund transfers from her trust account.  On February 27, 2015, the customer called to request a wire transfer for $569,700.53.  The firm used a pre-signed, blank letter of authorization from the customer’s file to process the request.  Within the next couple of days, the customer’s email account had been hacked and the firm received 6 emails with wire transfer requests to different payees.  Buttonwood did not contact the customer to confirm each request.  Instead, it used the pre-signed LOA form and disbursed $207,300 out of the customer’s account as directed in the fraudulent emails.  The fraud was discovered once the firm became suspicious of the activity and called the client to confirm.  Buttonwood and its clearing firm were able to retrieve most of the money and reimburse the reminder amount to make the client whole.   It is worth noting that Buttonwood self-reported the violations to FINRA.

If you believe that you have suffered losses as a result of misconduct, you may contact David A. Weintraub, P.A. 7805 SW 6th Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.