An advisor reported that his senior client requested a $500,000 withdrawal to loan to a friend. When the advisor asked his client for additional information, she replied that the friend was a South Korean K-pop singer, songwriter and producer working with a major record label. The funds were to buy the singer out of his contract with the record company. She claimed she had been communicating with the singer since 2018 but had never met him in person.

The advisor expressed concern that the client would need to liquidate a stock that would trigger exorbitant capital gains to facilitate the withdrawal. The client remained adamant about proceeding with the request. Finally, the advisor suggested that she contact her CPA to discuss the tax ramifications and encouraged her to add one of her adult children as a trusted contact to her accounts. The client declined, saying she did not want her children involved. 

The advisor escalated the issue to his broker-dealer’s senior investor protection department, which reported it to Adult Protective Services (APS). APS informed the advisor it spoke to the client and discussed the concerns, but barring any new information, they would not take further action and closed out the investigation.

The client later provided a document to the advisor, claiming it was the contract from the record label. Upon review, the document was highly suspicious: it contained several spelling and grammatical errors and was missing language that would constitute a contract. The advisor was able to convince his client that the documentation she provided was not legitimate. The client finally agreed to hold off on the stock sale but shared that she was still in contact with the singer.

The broker-dealer reviewed the client’s withdrawal history and found another questionable withdrawal for a large amount. The advisor stated that his client had also said she was loaning a friend the funds temporarily and expected them to be returned to the account by the end of the year. Though the client claimed the loan was repaid, the funds were never deposited. The advisor had no additional details on the friend.

After concluding its investigation, the broker-dealer’s crimes compliance department requested all the client’s accounts be closed due to the risk to the firm. The client was also added to an internal watch list due to her refusal to believe she was the target of a scam and continued communication with suspicious individuals.

Protect your firm and your clients: Keep in touch with your compliance officer and ask questions before similar situations accelerate. Reach out to our compliance team for strategies on safeguarding your business today: [email protected]

This article is for informational and educational purposes only. Please understand that no situations or experiences are exactly alike, and the information provided is not to be construed as an endorsement or testimonial of any of its past or current clients or advisors, nor any assurance that we may be able to help anyone achieve the same or similar results. Past performance is no guarantee of future results.