Broker cited for bilking elderly clients
ARMANDO RIOS • BULLETIN STAFF WRITER • JANUARY 8, 2009
This event reminds us why Integrity and Honor are so cherished and why people can be so mistrusting or our services.
The Arkansas Securities Department issued a cease-and-desist order Tuesday against Mountain Home resident Robert Kyle Stewart for the allegedly fraudulent misappropriation of more than a half-million dollars from two elderly Baxter County residents. Arkansas Securities Commissioner A. Heath Abshure scheduled a hearing to determine whether Stewart’s broker-dealer agent and investment adviser representative registrations should be permanently revoked in connection with an alleged misappropriation of more than $600,000 from two elderly female clients.
It’s alleged Stewart, while employed by A.G. Edwards & Sons Inc., improperly designated himself as beneficiary of one of his client’s charitable trusts and adjusted the monthly benefits payable, reducing an 89-year-old widow’s monthly income by 50 percent.
In addition, the securities staff alleges Stewart misappropriated $283,734.29 from the client’s account on June 23, 2007.
Stewart was to repay the loan through yearly payments of $5,000. Stewart made three payments, according to the Securities Department.
According to the department, in 2007, the client created a charitable remainder trust funded with approximately $1.6 million from a stock sale, and she understood she would receive $10,000 per month from the trust for the rest of her life with the remainder to be donated to certain charities. Stewart was designated as the donor adviser, allowing him to determine which charities would be beneficiaries.
According to the department, Stewart submitted a revised application that removed him as donor adviser and named himself a 50 percent beneficiary for his life, unknown to the client. As a result, the first client’s monthly income was reduced from $10,000 to $5,000.
Stewart received $27,610.54 from the client’s trust before being removed as an income beneficiary by the client with the assistance of A.G. Edwards & Sons. At the same time, A.G. Edwards & Sons removed Stewart as the client’s broker, the complaint states.
The securities staff alleges Stewart took advantage of a second client, who was 102, by enticing her to invest more than $340,000 in CCK Corp., an entity in which Stewart served as president.
“Stewart fraudulently represented to the client that CCK was a ‘farming or cattle ranching’ venture, when in reality CCK’s only ‘asset’ was a checking account used by Stewart to convert the client’s funds to his personal use,” according to the Securities Department. “The records of the Arkansas Securities Department showed no registration or exemption filing for the CCK Corp. investments to be sold in Arkansas.”
Account statements revealed funds were used to buy a 2006 GMC Yukon XL, pay gambling debts and to pay for home improvements. Checks written on the account were signed by Stewart, according to the complaint.
The cease-and-desist order notes A.G. Edwards conducted an internal investigation which resulted in Stewart’s termination and a monetary settlement paid to Stewart’s victims.
According to the Securities Department, Abshure also found Stewart committed securities fraud in violation of the Arkansas Securities Act in dealings with both clients and, in addition, Stewart violated a number of activities prohibited by sales practice rules by the commissioner, including rules prohibiting borrowing customer funds and other “fraudulent, dishonest and unethical practices.”
The investigation continues and any residents with additional information concerning the matter are urged to contact Arkansas Securities Department attorney Shannon Underwood at (501) 324-9260 or 1-800-981-4429.
According to the amended complaint, Stewart had been registered as a broker and dealer agent in Arkansas since July 5, 1999 and as an investment adviser representative since May 7, 2002.
Stewart was employed with A.G. Edwards & Sons, Inc. from Sept. 10, 1990, until his termination Dec. 6, 2007 when the company cited a violation of RIM policy and industry rules.
According to the Securities Department staff investigation, A.G. Edwards & Sons began an internal review Nov. 9, 2007 of Stewart’s activities with the clients after a telephone call from an attorney representing the two clients. The attorney told A.G. Edwards & Sons that Stewart was designated a second income beneficiary for the first client’s charitable trust but the client did not understand how Stewart could be designated as such.
A.G. Edwards & Sons settled complaints regarding Stewart’s actions with the first client for $264,734.29, and with the second client for $345,914.13, according to the complaint.