On Dec. 15, 1988, Joseph D. Bonanno was arrested in Massachusetts and charged with felony larceny following accusations that he had stolen $1,571.76 from First American Bank. Thereafter, Bonanno fled before standing trial.
And thus begins an extraordinary tale.
For starters, in 1992, Bonanno obtained a new social security number under the name of Timothy W. Hyde.
Now, let's forward about a decade.
From February 2001 through March 2009 -- an impressive 8-year span -- Bonanno defrauded the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) [formerly the NASD], and the Ohio Division of Securities (ODS) by electronically filing approximately 45 materially false documents, including Forms U4 / U5, with FINRA, which that self-regulatory organization thereafter shared with the SEC and ODS. Among the submitted falsehoods were Bonanno's name, social security number, and date of birth.
Dr. Bonanno and Mr. Hyde -- some poetic liberties taken
Specifically, Bonanno represented himself as "Timothy W. Hyde," whom Bonanno apparently claimed was born on February 3, 1970, with a social security number whose last four digits were "3072." In fact, Timothy W. Hyde died on February 12, 1976, and had never been issued a social security number. Press accounts suggest that the real Hyde was born Feb. 3, 1976, making him about 9-days old at his death.
In contrast to the above falsehoods, Bonanno was born on May 7, 1961, and had a social security number with the last four digits of "7232." Consequently, there was about a ten-year discrepancy between Bonanno's older birthdate and that of Hyde's -- plus the fact that the real Hyde was deceased.
In 2001, Bonanno submitted an application to FINRA through his employer for the purpose of becoming a registered representative. FINRA approved the registration of "Timothy W. Hyde," as identified above. In furtherance of his scheme, Bonanno (as Hyde) submitted a Form U4 to FINRA with all of the fraudulent facts noted above. That Form U4 affirmatively denied that Bonanno had ever been charged with a felony, which was a materially false statement. Unfortunately, the deceit spread like a contagion because whatever was submitted to FINRA, that regulator then passed on to the SEC and ODS.
Using the alias Timothy Hyde, Bonanno became the president and owner of Hyde Financial Investments LLC, an investment adviser registered with the SEC. Bonanno was registered as an investment adviser representative from approximately February 9, 2009 through April 8, 2009. Also, Bonanno was a registered representative of at least two registered FINRA broker-dealers: Cadaret, Grant & Co. and AXA Advisors, LLC.
The Fatal Mistake
As the stock market nosedived in 2008, it seems that Bonanno's fortunes tracked that decline. There are reports that his brokerage clients were filing complaints against him with FINRA. Then, on Christmas Day, his wife called the local police alleging that Bonanno had assaulted her after a drinking bout the prior day. The Jackson Township police charged Bonanno with domestic violence, and he subsequently pleaded guilty to a lesser charge. Unfortunately, this time, Bonanno's fingerprints (submitted as those of Hyde) went through the system and came back with a positive hit at the FBI: Hyde was not Hyde -- he was the fugitive Bonanno.
Bonanno was indicted in 2009 United States v. Joseph D. Bonanno, Case No. 5:09-CR-170 (N.D. Ohio) at http://media.cantonrep.com/pdfs/hyde/2009-04-17_Hyde_indictment.pdf and on August 6, 2009, he pled guilty to wire fraud, aggravated identity theft, false statements, and false statements in application for a passport. On April 22, 2010, a judgment was entered against Bonanno, sentencing him to 3½ years in prison, 3 years of supervised release, and a $500 fine. Bonanno, 49 years old, currently resides in federal prison in Beaumont, Texas.
In anticipation of the institution of SEC proceedings, Bonanno submitted an Offer of Settlement, without admitting or denying the findings, except as to the SEC's jurisdiction over him and the subject matter of these proceedings. In the Matter of Joseph D. Bonanno, Respondent (ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 203(f) OF THE INVESTMENT ADVISERS ACT OF 1940, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS /Securities Exchange Act Of 1934 Release No. 63232 / Investment Advisers Act Of 1940 Release No. 3101 / Administrative Proceeding File No. 3-14105, November 2, 2010) at http://sec.gov/litigation/admin/2010/34-63232.pdf . The SEC deemed it appropriate and in the public interest to bar Bonanno from association with any broker, dealer, or investment adviser.
Just for laughs -- sardonic perhaps -- consider this quote from the NASD's (now FINRA's) 2005 Notice to Members 05-39 (May 2005): Fingerprinting Procedures: NASD Suggests Best Practices for Fingerprinting at http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p014265.pdf
NASD encourages its members to review and, if necessary, update their fingerprinting procedures so that, to the extent possible, they are able to verify the identity of persons submitting fingerprints in the employment process. Robust procedures will help reduce the possibility of an individual entering the securities industry under an assumed identity, thereby furthering NASD's goals of investor protection and market integrity.
Just for laughs -- sardonic perhaps -- consider this quote from FINRA's 2007 Notice to Members 07-55 (November 2007): Personnel Background Investigations: FINRA Reminds Member Firms of Their Obligations Regarding Background Investigations of Prospective Personnel at http://www.cecouncil.com/Documents/0affa8b4-e858-4815-8e15-fb0adc76b4c4.pdf
Endnote 6: Pursuant to Section 17(f)(2) of the Exchange Act and SEC Rule 17f-2, certain persons employed in the securities industry are required to be fingerprinted for purposes of a criminal background check. Firms are responsible for obtaining a prospective employee's fingerprints and certain required identifying information. Firms then submit the prospective employee's fingerprints together with the required identifying information to FINRA. FINRA, in turn, submits these fingerprints to the FBI. FINRA also makes the fingerprint results available to the employing member firm and regulators, consistent with applicable federal laws and FBI and FINRA requirements. See NASD Notice to Members 05-39 (NASD Suggests Best Practices for Fingerprinting Procedures) (May 2005).
Physician, heal thyself!
Bill Singer's Comment: Okay, someone, anyone -- yoo hoo, anybody out there? Okay, let me ask, was any regulator or criminal justice agency involved with this mess doing their job of, you know, protecting the public against criminals and fraudsters? I mean, for godsakes, am I the only one who doesn't get this story?
Let me set out the salient facts in convenient bullet point fashion for your consideration:
So, lemme see if I have this right. I can commit a felony two or three decades ago -- let's make it something juicy like setting off a bomb in Times Square or mass murder. They catch me and fingerprint me but I manage to escape. I then flee one state and move to another. I then go online, find some names of folks who died about ten years earlier and then get their birth certificate. For a goof, how about I get the birth certificate of an Asian-American or an African-American -- or, you know, someone at least ten years younger than me. I then submit that birth certificate as part of an application to get a new Social Security number. Presto!!! They issue that new Social Security card to me under an assumed name.
Next, I decide to become a stockbroker. Using the fake identity and Social Security Number, I just check off the boxes, attach my fingerprints (praying that someone will just go through the motions and never notice that they belong to a fugitive felon), and then breeze through the whole process.
Wow, don't know about you but I'm sleeping much better tonight.
Seriously, could the system be any more broken than this? The regulators and the criminal justice system can offer to us all the explanations and excuses that they want. The inescapable fact is that something is wrong, very wrong here. This just should not happen.
What magic occurred after the Christmas Day 2008 arrest that suddenly altered the supposed Mr. Hyde's fingerprints into those of Mr. Bonanno's? How do we explain the grotesque failure to detect this felon given the multiple times that his fingerprints went through the sytem?