In the Matter of Raymond James Financial Services, Inc., J. Stephan Putnam and David Lee Ullom

Stephen Putnam (defendant) was president and chief operating officer of Raymond James Financial Services, Inc. (RJFS) (defendant), a registered broker-dealer. David Ullom (defendant), who had settled allegations of making false statements to a securities regulator, managed RJFS’s Cranston, Rhode Island, office. Dennis Herula, a Cranston registered representative, was permitted to engage in outside business activities and work off-site. Herula was raising funds for Brite Business Corporation (Brite) and proposed that RJFS participate in a Brite tax strategy. RJFS executives were suspicious and declined to participate. RJFS nevertheless permitted Brite to maintain funds in a brokerage account, purchase $115 million of treasuries on margin at a loss, and propose additional business. Putnam learned that Herula sent unauthorized correspondence to Brite investors on RJFS stationery and told Ullom to monitor Herula’s activities. Putnam did not place Herula on heightened supervision, have Herula’s correspondence reviewed or his office inspected, or follow up to ensure that Ullom was monitoring Herula. RJFS did not regularly inspect off-site locations or have heightened-supervision policies for registered representatives. To ensure compliance, RJFS used audits, monthly branch-manager reports, and suspicious-trade exception reports. Cranston’s auditor was not informed that Herula did business with Brite, sent unauthorized correspondence, and worked off-site. Monthly-report contents were not independently verified. No one followed up on exception reports showing multimillion-dollar transfers between Brite’s and Herula’s wife’s accounts and checks to third parties. Herula and others fraudulently obtained and misappropriated Brite investors’ funds. The Securities and Exchange Commission (SEC) (plaintiff) charged RJFS, Putnam, and Ullom with failing to reasonably supervise Herula. Ullom settled. A hearing was held to adjudicate the allegations against RJFS and Putnam.