On January 24, 2024, the Securities and Exchange Commission (SEC) charged Jesus Rodriguez, a former financial advisor, with fraud for misappropriating more than $3.475 million from ten brokerage account holders and advisory clients.

Case Summary

COMPLAINT

The Securities and Exchange Commission (the "Commission") presents the following allegations in its complaint against defendant Jesus Rodriguez ("Rodriguez" or "Defendant"):

SUMMARY

Between 2014 and 2021 (the "Relevant Period"), Rodriguez orchestrated a fraudulent scheme to embezzle over $3.4 million from at least ten investors ("the Investors"). During this time, he served as their registered representative and/or investment adviser representative at a major financial institution ("Firm A") that was dually registered with the Commission as a broker-dealer and investment adviser.

Rodriguez implemented his embezzlement scheme primarily through unauthorized ACH transfers, wire transfers, and cash journal transfers to other accounts within Firm A.

FOOTNOTE

ACH transfers refer to electronic, bank-to-bank transactions managed through the Automated Clearing House (ACH) Network.

In several cases, Rodriguez wrongfully extracted funds from the Investors' accounts by assuming unauthorized debt secured against their securities accounts. In other cases, he sold securities from the Investors' accounts just before stealing some or all of the proceeds.

As an investment adviser to three of the defrauded investors, Rodriguez violated his fiduciary responsibilities by misappropriating their funds and/or providing them with false information.

Violations

Based on the aforementioned conduct and the further allegations detailed here, the Defendant has breached Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78j(b)] and Rule 10b-5 under it [17 C.F.R. § 240.10b-5], along with Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act") [15 U.S.C. §§ 80b-6(1) and (2)].

If the Defendant is not restrained and enjoined, he is likely to continue engaging in the actions, practices, transactions, and business activities described in this Complaint or in activities of a similar nature and purpose.

Nature Of The Proceedings And Relief Sought

The Commission initiates this action under the authority granted by Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)] and Sections 209(d) and 209(e) of the Advisers Act [15 U.S.C. §§ 80b-9(d) and (e)].

The Commission seeks a final judgment that:

1. Permanently restrains the Defendant from violating the federal securities laws and rules mentioned in this Complaint, as per Section 21(d)(1) of the Exchange Act and Section 209(d) of the Advisers Act.
2. Requires the Defendant to forfeit all gains obtained through the alleged violations, along with prejudgment interest, as outlined in Sections 21(d)(3), 21(d)(5), and 21(d)(7) of the Exchange Act.
3. Obligates the Defendant to pay civil penalties under Section 21(d)(3) of the Exchange Act and Section 209(e) of the Advisers Act.
4. Orders any other appropriate relief that the Court deems just and suitable.

Defendant

Jesus Rodriguez, 44, is a Mexican citizen living in El Paso, Texas. He started at Firm A in 2008 as a registered representative and investment adviser representative at their El Paso branch, after working at another dually-registered entity between 2004 and 2007. Rodriguez remained at Firm A until 2021, when he was dismissed after the conduct outlined in this complaint was uncovered. He held FINRA Series 7 and 66 licenses.

After leaving Firm A, Rodriguez submitted a letter of acceptance, waiver, and consent to FINRA, effectively barring him from any association with FINRA member firms. Currently, Rodriguez is being prosecuted by El Paso authorities due to allegations that he misappropriated funds from an investor’s Firm A account.

Facts

I. BACKGROUND

During his employment at Firm A, Jesus Rodriguez encouraged clients, many of whom were based in Mexico, to open brokerage or advisory accounts with Firm A, where he acted as their registered representative and/or investment adviser representative.

Rodriguez gained the trust of his brokerage customers and advisory clients to manage their assets at Firm A, only to exploit this trust for his own financial gain. Between March 2014 and July 2021, he misappropriated over $3.4 million in total from the ten Investors.

None of these Investors permitted Rodriguez to withdraw funds from their accounts or use their money for personal purposes.

Rodriguez persuaded some Investors, specifically Investors D, E, and H, to have their Firm A account statements sent to an address he controlled, relying on him to provide accurate account information

Other Investors similarly relied on Rodriguez for account information because of limited access to their designated mailing addresses, language barriers that prevented them from understanding Firm A's English statements, or irregular review of their account statements.

II. RODRIGUEZ'S PRIMARY METHODS OF MISAPPROPRIATING FROM INVESTOR ACCOUNTS

Rodriguez employed three main strategies to embezzle funds from the ten Investors.

He arranged unauthorized wire transfers from their accounts by forging internal forms and authorization letters.

He conducted unauthorized cash journal transfers from their accounts to other accounts at Firm A.

He initiated unauthorized ACH transfers from the Investors' accounts, mainly to cover his own credit card balances.

A. Unauthorized Wire Transfers

Between March 2014 and July 2021, Rodriguez embezzled over $1.7 million through more than 70 unauthorized wire transfers from the accounts of Investors A, C, D, E, G, and I for his personal gain. For nearly every unauthorized transfer, Rodriguez falsified Firm A’s internal authorization forms by falsely claiming he had received a verbal request for the transfer from the Investor. Either Rodriguez or his assistant, acting under his direction, completed and submitted these forms based on his false assertion that the Investor had verbally requested the wire transfer. Rodriguez also fabricated reasons for the transfers, such as “equipment for business purchase,” “loan balance payoff,” “payment of estate planning and business services,” “professional services,” and “property taxes.”

None of the Investors requested these wire transfers or authorized Rodriguez to conduct them. He arranged these unauthorized third-party wire transfers for his personal benefit.

For instance, Rodriguez directed more than $350,000 across 20 separate wires from the accounts of Investors C, D, and G to his mother’s bank account. Both Rodriguez and his mother used these funds to pay off credit card bills and car payments, withdraw cash from ATMs, and transfer money to Rodriguez’s bank account.

He also transferred $325,400 through 14 separate wires from the accounts of Investors A, D, and G to his then-wife or her controlled company.

In one instance, Rodriguez couldn't use a falsified verbal request authorization form because the amount exceeded Firm A’s limit on verbal transfers. Instead, he forged a written authorization letter and submitted it to Firm A.

In December 2018, he initiated a $125,000 wire transfer from Investor C’s account to finance his purchase of a Lamborghini. Without Investor C’s consent or knowledge, Rodriguez fabricated a written authorization letter claiming the funds were to “finalize the purchase of commercial property” and affixed Investor C’s signature to the letter without her approval. He even created a fake email account impersonating Investor C to convince Firm A to process the wire. He used this account to send the forged letter to his Firm A email account, from which he forwarded it internally and requested the wire transfer. Firm A processed the transfer.

B. Unauthorized Cash Journal Transfers

Between March 2016 and June 2021, Rodriguez misappropriated at least $1.3 million through dozens of unauthorized cash journal transfers from the accounts of Investors B, C, D, E, F, G, H, I, and J to other accounts at Firm A.

Much like his falsification of internal Firm A authorization forms for verbal wire transfers (as described in Paragraph 23), Rodriguez falsified similar internal authorization forms for purported verbally requested journal transfers. Either he or his assistant, acting on his instructions, filled out and submitted these forms based on Rodriguez's false representation that he had received a verbal request from the Investor for the transfer. He also provided fake justifications for these transfers, such as "stock purchase," "vacation rental," "estate planning and taxes," "capital contribution," and "professional services."

None of the Investors authorized these cash journal transfers or gave Rodriguez permission to conduct them.

In many cases, Rodriguez directed these fraudulent transfers to the accounts of his relatives or associates. For instance, he transferred more than $375,000 from the Firm A accounts of Investors B and E to a corporate account owned by his mother. Rodriguez and/or his mother used this account to wire money to himself and his then-wife and pay off credit card bills.

Similarly, in December 2019, he conducted an unauthorized journal transfer of about $8,000 from the Firm A account of Investor G to the account of a relative of his then-wife.

C. Unauthorized ACH Transfers

From November 2018 to July 2021, Rodriguez stole over $400,000 from the accounts of Investors B, C, D, E, F, and G through more than 100 unauthorized ACH transfers.

He conducted nearly all of these transfers via credit card companies, using the Investors' Firm A accounts to pay off his own credit card balances. In a few cases, he used an online payment app to withdraw money from an Investor's Firm A account and transfer it to his personal account within the app.

For each unauthorized ACH transfer, Rodriguez provided the account details for an Investor's Firm A account as the source of payment via the ACH system. By entering this information at the credit card company or payment app, he falsely claimed he had permission to debit the specified accounts.

These credit card companies or the payment app electronically sent the payment instructions to Firm A through the ACH system, and Firm A then processed them by deducting the amount from the Investor's account and transferring it to the credit card company or payment app. Rodriguez exploited Firm A's policies, which did not require account holder authorization for ACH transfers initiated by external financial institutions.

Using this method, Rodriguez misappropriated Investor funds to pay credit card balances across a dozen credit card companies.

None of the affected Investors authorized these ACH transfers or allowed Rodriguez to use their funds for this purpose.

III. RODRIGUEZ’S UNAUTHORIZED USE OF SECURITIES-BACKED LOANS AND SALES PROCEEDS FOR MISAPPROPRIATION

Rodriguez financed much of his embezzlement from Investors A, B, C, D, E, G, I, and J by initiating unauthorized borrowing against their securities accounts.

He misappropriated funds from Investors A, C, D, G, and I by making withdrawals from loan accounts or lines of credit at Firm A, using their securities accounts as collateral. Similarly, he misappropriated funds from Investors B, E, and J by leveraging a margin feature on their securities accounts for unauthorized withdrawals.

The withdrawals, whether from loan accounts or lines of credit or by using margin, were backed by the Investors’ securities accounts. Such pledges of securities are classified as a "sale" under Section 10(b) of the Securities Exchange Act and Rule 10b-5.

Moreover, as part of his scheme, Rodriguez misappropriated from Investors D, E, F, and G by directly selling securities in their accounts and then misappropriating all or part of the proceeds within three days.

All unauthorized withdrawals from Investor F’s account were funded by automatic sales of Investor B’s holdings in a money-market securities fund.

In at least five instances, Rodriguez misappropriated $84,000 from Investor E within three days of a securities sale. He also misappropriated over $20,000 from Investor G and over $12,000 from Investor D through unauthorized transfers, which took place within three days of selling securities in their respective accounts.

IV. RODRIGUEZ BREACHED HIS FIDUCIARY DUTY TO ADVISORY CLIENTS

Rodriguez served as an investment adviser to Investors D, E, and H.

In this role, he provided them with investment advice on securities and earned a portion of the advisory fees they paid to Firm A for their advisory accounts.

As an adviser, he owed Investors D, E, and H a fiduciary duty of utmost good faith. However, he violated this duty by exploiting their trust to misappropriate funds from their advisory and brokerage accounts at Firm A.

Rodriguez embezzled around $440,000 from Investor D’s accounts at Firm A, all while serving as D’s investment adviser.

Similarly, he stole roughly $380,000 from Investor E’s accounts at Firm A during his time as E’s investment adviser.

He also took approximately $124,000 from Investor H’s accounts at Firm A, with at least $10,000 misappropriated while H was his advisory client.

V. RODRIGUEZ ENGAGED IN ADDITIONAL DECEPTIVE CONDUCT

Rodriguez used various deceptive methods to hide his fraudulent activities from the Investors.

For instance, he persuaded Investor E and her husband to establish and fund a Firm A account through a corporate entity while having their account statements sent to a P.O. Box under his control. With this arrangement, he initiated unauthorized transfers from Investor E’s account for his personal gain. On October 12, 2018, he transferred $25,000 from her account to another company where he had an investment, falsely stating on a “verbal wire processing form” that Investor E herself had requested the transfer as a “capital contribution.

After Firm A notified Investor E via email that her “wire transfer request” had been processed, she forwarded the message to Rodriguez, confused, as she hadn't requested any transfer. He falsely reassured her that he would "take care of it," but he didn't repay the money or disclose that he had initiated the transfer. With her statements being sent to the P.O. Box under his control, she couldn't see that the amount wasn't credited back to her account. Despite repeated requests to Rodriguez for her account statements, he made excuses and withheld them. His lies allowed him to misappropriate $380,000 from her between January 2017 and September 2020.

In another instance, when Investor J noticed cash missing from her account and asked Rodriguez about it, he falsely claimed it was an error. To cover up, he moved $16,460 from another account to partially reimburse Investor J.

Rodriguez also lied to Firm A to cover up his misappropriations. When Firm A staff questioned him about some Investors’ significant loan obligations, he fabricated explanations. In July 2018, he falsely told the firm's leverage review staff that Investor G had borrowed funds to buy commercial real estate and assured them that G had the capacity to repay the loan, although Rodriguez had taken out the loan without G's consent. In subsequent follow-up inquiries in September 2019, August 2020, and December 2020, he made similar false assurances.

In August 2019, when questioned about a large balance owed by Investor C, Rodriguez lied, saying she had borrowed to buy commercial real estate and was aware of the risk. In reality, most of her outstanding balance was due to Rodriguez's misappropriation, including his unauthorized purchase of a Lamborghini as previously noted.

VI. RODRIGUEZ USED MISAPPROPRIATED FUNDS TO SUPPORT HIS LIFESTYLE

Rodriguez leveraged the funds he stole from the Investors to maintain an extravagant lifestyle, which included acquiring and maintaining several luxury vehicles like a Lamborghini, multiple BMWs, a Land Cruiser, a Land Rover, and a Toyota Yaris. He frequently traveled from El Paso to Austin to race these cars on a private track.

As previously detailed, Rodriguez racked up hundreds of thousands of dollars in credit card debt, which he partially paid directly from Firm A investor accounts or indirectly through transfers to his mother's bank account. Additionally, he unlawfully moved $325,000 to his then-wife from the accounts of Firm A investors.

Claims For Relief

I. FIRST CLAIM FOR RELIEF VIOLATIONS OF EXCHANGE ACT SECTION 10(B) AND RULE 10B-5

The Commission reaffirms and incorporates by reference the allegations set forth in paragraphs 1 through 70.

In connection with the purchase or sale of securities, and using the means or instrumentalities of interstate commerce, mail, or the facilities of a national securities exchange, Rodriguez, either directly or indirectly, alone or in collaboration, has:

1. Knowingly or recklessly utilized one or more devices, schemes, or artifices to defraud;
2. Made one or more false statements of material fact or failed to disclose necessary material facts, rendering his statements misleading under the circumstances; and/or
3. Engaged in one or more acts, practices, or business activities that constituted, or would constitute, fraud or deceit.

As a result of these actions, Rodriguez has directly or indirectly violated Exchange Act Section 10(b) and Rule 10b-5 and will likely violate them again unless restrained.

II. SECOND CLAIM FOR RELIEF VIOLATIONS OF ADVISERS ACT SECTION 206

The Commission reaffirms and incorporates by reference the allegations set forth in paragraphs 1 through 70

At all relevant times, Rodriguez was classified as an investment adviser under Section 202(11) of the Advisers Act [15 U.S.C. § 80b-2(11)].

Using the mail or other means or instrumentalities of interstate commerce, Rodriguez, directly or indirectly, has:

1. Knowingly or recklessly utilized one or more devices, schemes, or artifices to defraud clients or potential clients, and/or
2. Knowingly, recklessly, or negligently engaged in transactions, practices, and courses of business that operated or would operate as a fraud or deceit on clients or prospective clients.

Therefore, Rodriguez, directly or indirectly, individually or in collaboration, has violated Sections 206(1) and 206(2) of the Advisers Act [15 U.S.C. §§ 80b-6(1) and 80b-6(2)] and, unless restrained, will continue to do so.

Prayer For Relief

The Commission respectfully requests that the Court issue a Final Judgment:

I.

Permanently enjoin Rodriguez, his agents, servants, employees, attorneys, and anyone acting in concert with him from directly or indirectly violating Exchange Act Section 10(b) [15 U.S.C. § 78j(b)], Rule 10b-5 [17 C.F.R. § 240.10b-5], and Sections 206(1) and 206(2) of the Advisers Act [15 U.S.C. §§ 80b-6(1) and 80b-6(2)].

II.

Order Rodriguez to return all illicit gains obtained directly or indirectly, along with pre-judgment interest, due to the cited violations.

III.

Require Rodriguez to pay civil monetary penalties as specified under Exchange Act Section 21(d)(3) [15 U.S.C. § 78u(d)(3)] and Section 209(e) of the Advisers Act [15 U.S.C. § 80b-9(e)].

IV.

Grant any additional relief the Court deems fair and appropriate.

Key Takeaways for Investors From the Case:

The following are the key takeaways for investors from the case:

1. DIVERSIFY DUE DILIGENCE

This case underscores the importance of conducting thorough due diligence on financial advisors. Investors should independently verify their advisor's credentials, track record, and regulatory compliance.

2. DIRECT ACCESS TO ACCOUNTS

Investors should have direct, unmediated access to their account statements, online banking, and notifications. Avoid forwarding important documentation through third parties, particularly advisors, to maintain transparency.

3. RED FLAGS AND VIGILANCE

Be aware of red flags like unauthorized transactions, delays in receiving statements, or irregular explanations from the advisor. Regularly scrutinize your account statements for any discrepancies.

4. REGULATORY AWARENESS

Understand the relevant regulations and protections for your investments. Familiarize yourself with your advisor's regulatory body (e.g., FINRA, SEC) and know your rights to file complaints or report suspicious activities.

5. PROFESSIONAL FIDUCIARY RESPONSIBILITY

A fiduciary advisor is obligated to act in their clients' best interests. If an advisor breaches this duty, clients should report to regulatory authorities promptly and seek legal advice.

6. INDEPENDENT VERIFICATION

Routinely consult independent third-party resources, such as another financial professional or a trusted attorney, to review your investment portfolio and financial strategy.

7. TRUST, BUT VERIFY

While building a trusting relationship with an advisor is essential, ensuring regular cross-checks of their financial activities is crucial to mitigate fraud risks.

Key Takeaways for Financial Market Practitioners and Management

The following are the key takeaways for financial market practitioners and management from the case:

1. ROBUST COMPLIANCE PROGRAMS

This case emphasizes the need for comprehensive compliance programs that incorporate regular audits, staff training, and updated protocols to detect and prevent fraudulent activities.

2. ENHANCED INTERNAL CONTROLS

Strengthening internal control measures, such as dual authorization for transactions and real-time transaction alerts, can deter unauthorized transfers and manipulation.

3. CLIENT EDUCATION

Firms should regularly educate clients about potential fraud schemes, encourage them to monitor their accounts directly, and outline procedures for promptly reporting suspicious activities.

4. PROACTIVE RISK MANAGEMENT

Developing a proactive risk management framework, which includes monitoring for unusual transactions and conducting frequent internal audits, is essential for mitigating reputational and financial damage.

5. WHISTLEBLOWER PROTECTIONS

Implement and promote whistleblower protection programs to encourage staff members to report unethical practices without fear of retaliation.

6. STRINGENT HIRING PRACTICES

Conduct comprehensive background checks and periodically reassess employees in key positions, especially those dealing with sensitive financial transactions, to ensure ongoing integrity.

7. REGULATORY COOPERATION

Establish clear communication channels with regulatory bodies for swift information sharing and to remain updated on industry-wide compliance requirements and fraud trends.

8. DOCUMENT RETENTION AND ACCESS

Ensure all clients have direct, unfettered access to their statements and transaction history, and adopt strict document retention policies to facilitate investigation and resolution if issues arise.