Bogus Stockbroker Gets 15 Years In Prison For Elder Fraud

November 22, 2016

If you had encountered Lisa A. Lewis sometime from 2006 through 2013, she may have told you that she lived in Wisconsin and was an Account Representative  with both Fidelity Investments and a Fidelity Brokerage Services. The Wisconsin thing she seems to have gotten right;  as to the rest . . . well, that's the grist for today's Blog. By way of a teaser, we got 13 elderly investors who were defrauded out of at least $1 million; and Lewis sentenced to 15 years in federal prison.

Case In Point

According to the allegations in United States of America, Plaintiff, v. Lisa A. Lewis, Defendant (Indictment, United States District Court for the Eastern District of Wisconsin, 13-CR-219, November 5, 2013), Lewis had been registered with Financial Industry Regulatory Authority ("FINRA") member firms from 1990 through 2006, but she had not been a registered representative since. Also, Lewis was not affiliated with the cited Fidelity companies.  

The Scheme

The Indictment presents this summation of Lewis's criminal conduct from September 2006 through July 2013:

3. Lewis' scheme was essentially to defraud approximately thirteen elderly investors located in the greater Green Bay area (the "Clients") as follows:
a. Lewis convinced the Clients to transfer their money to Fidelity where she falsely claimed that she was employed as an account representative who was paid by commission for each account established.
b. Lewis created or assisted Clients in creating an individual investment account with Fidelity, thereby, obtaining the Client's personal account information, including passwords.
c. Lewis then created joint Fidelity accounts under her name and that of the Client, often without the Client's knowledge and consent. Lewis created these accounts via the internet and linked them to the Client's individual account. Lewis intentionally misrepresented her identity in the creation of some accounts, for example, falsely describing herself as the niece of one Client.
d. Lewis then misappropriated the Clients money by transferring funds from the Clients personal accounts to the Lewis/Client joint account and then to one of Lewis' personal accounts. This was done without the Clients knowledge or consent and was not pursuant to any legitimate investment being made on behalf of the Clients.
e. Lewis also made unauthorized account transfers of Client funds in order to fraudulently withdraw Client funds by forging the Client's signature on checks drawn on that account. Lewis used the funds for personal expenditures and other expenses unrelated to the Client's purported investment.
f. Without authorization, Lewis applied for and received debit cards from Fidelity that were associated with a Client's individual account or the joint Lewis/Client accounts. Lewis then used the debit card to withdraw funds without permission from the accounts and make personal expenditures.
g. Lewis used the Client's funds to, among other things: (a) pay back previous Clients who requested access to their money; (b) purchase a 2013 Chevrolet Camaro; (c) gamble at local casinos; (d) pay personal expenses including credit card bills, and make cash payments to herself; and (e) pay for elective surgery for a friend.
h. In order to continue and prevent her scheme from being detected, Lewis had Client account statements sent exclusively to her address. Lewis also sent fictitious account statements and documents to Clients that misrepresented the value or existence of the Client portfolio.
i. Lewis also spoke telephonically with Fidelity account representatives and falsely identified herself as a Client in order to make unauthorized transfers or changes to Client accounts.
j. When Lewis did pay a Client, she did so with another Client's money, furthering the illusion that she was acting as an account representative who was earning actual returns for the Client.
4. As a result of the scheme, Lewis wrongfully obtained funds in excess of $1,000,000.
As further explained in "Former Broker Charged with Multiple Counts of Wire Fraud" (DOJ Press Release, November 7, 2013), Lewis, 48 years old, was charged in the Eastern District of Wisconsin ("EDWI") with 5 counts of Wire Fraud and, if convicted, faced a maximum sentence on each count of 20 years in prison; $250,000 fine, and three years of supervised release.
Guilty Plea
Lewis pled guilty to one count of wire fraud on June 12, 2014, was was sentenced to 15 years in prison and placed on three years of supervised release. Additionally, Lewis was ordered to pay about $2 million in restitution, and to forfeit a 2013 Chevrolet Camaro and her interest in several residences.
No . . . that's not the end of this story or of this case. Let's just say that a legal technicality arose.
Let's Try This Again
In United States of America, Plaintiff, v. Lisa A. Lewis, Defendant (Decision and Order Denying Motion to Disqualify, 13-CR-219 / December 21, 2015), EDWI offers this summary of the issues before it:
Defendant Lisa A. Lewis was indicted on multiple counts of wire fraud in violation of 13 U.S.C. § 1343 after embezzling in excess of two million dollars from at least thirteen elderly investors. She entered a guilty plea to one count, and on June 11, 2014, was sentenced to fifteen years in the custody of the Bureau of Prisons and three years of supervised release. Lewis appealed, but "challenge[d] only the district court's imposition of certain conditions of supervised release, including a special condition of supervised release imposing a payment schedule for restitution that differed materially from the condition orally pronounced at sentencing." (ECF No. 51-1.) The parties agreed that the sentence should be vacated and the case remanded in light of the Seventh Circuit's decisions in United States v. Thompson, 777 F.3d 368 (2015). Based upon the agreement of the parties, the Court vacated the sentence and remanded the case for resentencing. Claiming that the government's original sentencing argument violated the plea agreement, Lewis has now filed a motion seeking various forms of additional relief including reassignment of the case to a new sentencing judge, striking the Guideline calculation section from the Pre-Sentence Report (PSR), striking the government's sentencing memorandum from the record, and sealing or otherwise shielding the sentencing transcript and any other evidence of the court's sentencing decision from the newly assigned judge. For the reasons that follow, Lewis' motion will be denied.
In pertinent part, EDWI offered this rationale for denying Lewis' Motion:

[AUSA] Roach was likewise trying to convince the court that a substantial prison term of ten years was a fair and just sentence in this case. Given the lack of a prior record and the tendency of courts to view white collar crime, even where the amount of loss is great, as less deserving of significant sentences than crimes of violence or drug crimes, his argument cannot be reasonably viewed as an attempt to undermine the promised recommendation of ten years. Lewis' real argument is not with Roach's argument, but with the court's sentence.

I conclude that Lewis' effort to blame AUSA Roach for the sentence that the court found she deserved must fail. And with the failure of her claim that AUSA Roach breached the plea agreement, her requests that a new judge be assigned, the PSR and government's sentencing memorandum be struck and the transcript of her sentencing hearing sealed must be denied. Her motion seeking such relief (ECF No. 57) is therefore DENIED. The Clerk is directed to set this matter on the court's calendar for resentencing pursuant to the mandate of the United States Court of Appeals for the Seventh Circuit.

2016 Re-Sentencing

On February 19, 2016, and as amended on April 15, 2016, Lewis was sentenced to 180 months in federal prison and three years of supervised release. Lewis was ordered to pay $960,427.04 to 10 designated payees (13 individuals). Lewis was ordered to forfeit her interest in one residence, three real estate properties, and a 2013 Chevrolet Camaro Coupe. United States of America, Plaintiff, v. Lisa A. Lewis, Defendant (Amended JudgmentUnited States District Court for the Eastern District of Wisconsin, 13-CR-219, April 15, 2016).  As to the mechanics by which Lewis will be required to make payment and honor the terms of her release, this is what is provided in the Amended Judgment under the heading "Special Conditions of Supervision":
1. The defendant is to pay restitution at a rate of not less than $100.00 per month or 10% of his or her net earnings, whichever is greater. The defendant will also apply 100 percent of his or her yearly federal and state tax refunds toward the payment of restitution. The defendant shall not change exemptions without prior notice of the supervising probation officer.
2. The defendant shall not open new lines of credit, which includes the leasing of any vehicle or other property, or use existing credit resources without the prior approval of the supervising probation officer. After the defendant's court ordered financial obligations have been satisfied, this condition is no longer in effect.
3. The defendant is to provide access to all financial information requested by the supervising probation officer including, but not limited to, copies of all federal and state tax returns. All tax returns shall be filed in a timely manner. The defendant shall also submit monthly financial reports to the supervising probation officer.
4. The defendant shall not hold employment having fiduciary responsibilities during the supervision term without first notifying the employer of his or her conviction. The defendant shall not hold self-employment having fiduciary responsibilities without approval of the supervising probation officer.
5. The defendant shall not transfer, sell, give away, or otherwise convey any asset with a fair market value in excess of $500.00 without the approval of his/her supervising probation officer until all financial obligations imposed by this Court have been satisfied in full.
6. The defendant shall maintain one personal checking account. All of the defendant's income, "monetary gains" or other pecuniary proceeds shall be deposited into this account which shall also be used for payment of all personal expenses. Records of all other bank accounts, including business accounts, shall be disclosed to her supervising probation officer upon request.
7Cir Appeal
When lawyers talk about cases that die a somewhat tortured death, we are usually talking about the likes of USA v. Lewis. After Lewis was sentenced a second time by EDWI to 15 years' imprisonment, she appealed to the United States Court of Appeals for the Seventh Circuit ("7Cir"). United States of America, Plaintiff, v. Lisa A. Lewis, Defendant (Opinion, United States Court of Appeals for the Seventh Circuit, 16-1401, November 16, 2016). 7Cir summarized the bases of Lewis appeal as follows:
On appeal, Lewis makes four arguments: (1) the district court erred when it concluded that Lewis waived her right to assert that the government had breached the plea agreement by failing to raise this argument at the original sentencing or on the original appeal; (2) the district court erred when it concluded that the government did not breach the plea agreement; (3) the district court erred when it applied the two‐level vulnerable‐victim enhancement; and (4) the district court's sentence of fifteen years' imprisonment was substantively unreasonable. We first address her arguments regarding the plea agreement. We then turn to her arguments regarding the district court's sentence.  

Page 7- 8 of 7Cir 2016 Opinion

To Err Is Human, To Forgive Is Jurisprudence?

In affirming EDWI, 7Cir offers this initial explanation:

We hold that the district court did not err by refusing to hear Lewis's argument, but it did err by not affirmatively acknowledging that it had the authority to do so. But because the district court alternatively rejected that argument, and because we believe that the argument is meritless, we hold that the district court's error is harmless. Finally, we hold that the district court did not err at sentencing because the vulnerable‐ victim enhancement was properly applied and the district court's sentence was substantively reasonable.

Page 2 of 7Cir 2016 Opinion

No, it's not you; it is the manner in which courts and lawyers tend to explain things.

Let's parse through 7Cir's explanation in slower motion:
  1. The appellate court found that the trial court did not err when it refused to hear Lewis's argument.
  2. The appellate court found that the trial court die err, however, when it failed to affirmatively acknowledge that it had the authority to refuse to hear Lewis's argument.
SIDE BAR: Slowly . . . ever so slowly knit those two findings together . . . 7Cir said that although EDWI did not err in refusing to hear the defendant's argument, the lower court did err when it did not acknowledge that it had, in fact, the authority to refuse to hear the defendant's argument. You got that?  Really??

Assuming that you grasp the interplay of points 1 and 2 above (which, frankly, is one hell of an assumption), then let's move further through 7Cir's explanation:
  1. In the alternative, EDWI rejected Lewis's argument
  2. Because 7Cir found Lewis's argument to be meritlees, the appellate court deemed as "harmless," EDWI's error in not affirmatively acknowledging that it had the authority to refuse to hear Lewis's argument.
SIDE BAR: Getting out our judicial knitting needles yet again, we find that EDWI not only refused to hear Lewis's argument but apparently rejected that very argument it had refused to hear. Yeah, okay . . . sure . . . that make sense. Wading into that mess, 7Cir then explains that the argument that EDWI refused to hear but also rejected was meritless and, consequently, it's something like a dead-ball foul and let's pretend that nothing happened and unhear the blown whistles and unsee the dropped flags.

Vulnerable-Victim Enhancement

An interesting issue considered in the 7Cir 2016 Opinion pertained to the proper application of the Vulnerable-Victim Enhancement, which provides a basis upon which a sentencing federal judge may opt to impose a sentence higher than recommended in the applicable guideline range. As noted in the 7Cir 2016 Opinion, the ages of Lewis's victims "ranged from 75 to 92;" which prompted this more detailed discussion:

[T[hus, Lewis is correct that age alone can be insufficient to justify the application of the vulnerable‐victim enhancement. But because the district court did not base the application of the enhancement solely on the victims' ages, Lewis's argument ultimately fails.

Although the district court did base the application of the vulnerable‐victim enhancement at least in part on the victims' ages, the court also looked to several other vulnerabilities that Lewis exploited during the course of her scheme. As the district court noted and the victim impact statements reflect, Lewis had established long‐term working relationships with at least some of her victims before commencing her fraudulent scheme. As one victim's family member stated, Lewis "[p]os[ed] as a friend and advisor" and methodically did "things to develop trust over many years." (R. 21 at 47.) Lewis "waited until [her victim]'s advanced age, illness and memory losses after chemotherapy, along with [her victim's husband]'s progressive forgetfulness and weakness gave her the opportunity to steal their life savings-trying to get every penny of it." (R. 21 at 47.)   

Other victims and their family members emphasized Lewis's knowledge that her victims lacked basic computer skills. Finally, as the district court noted at resentencing, at least one of Lewis's victims "was in the hospital with colon cancer when much of the money was taken away." (R. 77 at 21.) Lewis, who became acutely familiar with her victims by posing as a friend and advisor for years before and during her scheme, intentionally chose these people, not merely because of their ages but also because of their various other vulnerabilities she could readily exploit.  

Pages 15 -16 of the 2016 7Cir Opinion

Strong Advocacy

As to the issue of whether DOJ was obligated under the plea agreement to not seek more than a 10-year prison sentence, 7Cir offers this commentary:

As previously mentioned, the plea agreement required the government to argue for no more than ten years' imprisonment. That is precisely what the government did throughout the sentencing process. The government repeated its ten‐year recommendation at the plea hearing, in its sentencing memorandum, and throughout the sentencing hearing. Strong advocacy in favor of the maximum sentence contemplated by a plea agreement does not constitute a breach, especially when the government reiterates its recommendation and the terms of the plea agreement throughout the sentencing process . . .

Page 13 of the 2016 7Cir Opinion

In affirming EDWI, 7Cir offered this observation concerning the appropriateness of the enhanced 15-year prison sentence:

[T]he district court concluded that Lewis's crime was "one of the most serious white collar crimes" it had ever seen. As such, the court rejected the "abstract mathematical calculation" of the guidelines because the guidelines didn't reflect the magnitude of Lewis's offense. (R. 77 at 45.)

Moreover, the district court considered the impact Lewis's crime had on her victims and the need to provide restitution to them. The court further considered "the need for just punishment" and determined that "deterrence played a huge role here because white collar crimes, unlike so many, . . .are not impulsive." (R. 77 at 47-48.) To send a message that this type of crime would not be tolerated, the district court chose to impose an above‐guidelines sentence. Finally, in deciding on an appropriate sentence, the district court considered the need to protect the public.

Page 18 of the 2016 7Cir Opinion

FINRA 2015 Fidelity AWC

An interesting aspect of this case was the action taken in December 2015 by FINRA, which pursuant to the terms of an Acceptance, Waiver and Consent settlement ("AWC"), fined its member firm Fidelity Brokerage Services LLC $500,000 and ordered it to pay about $530,000 restitution to nine of its customers. "FINRA Sanctions Fidelity Brokerage Services LLC $1 Million for Supervisory Failures" (FINRA News Release, December 18, 2015). As set forth in pertinent part in the FINRA News Release:

FINRA found that from August 2006 until her fraud was discovered in May 2013, Lewis was running a conversion scheme by targeting former customers from another brokerage firm from which she had been fired. Lewis told the victims she was a Fidelity broker and urged them to establish accounts at the firm and also established joint accounts with her victims in which she was listed as an owner. She eventually established more than 50 accounts and converted assets from a number of these accounts for her own personal benefit. In June 2014, Lewis pleaded guilty to wire fraud, and was sentenced to 15 years in prison and was ordered to pay more than $2 million in restitution to her victims.

FINRA found that Fidelity failed to detect or adequately follow up on multiple "red flags" related to Lewis's scheme. For example, though Lewis' victims were unrelated to one another, their various accounts shared a number of common identifiers tying them all to Lewis, such as a common email address, physical address or phone number. Fidelity also failed to detect Lewis' consistent pattern of money movements and overlooked red flags in telephone calls handled by its customer-service call center in which there were indications that Lewis was impersonating or taking advantage of her senior investor victims.

Brad Bennett, FINRA's Executive Vice President and Chief of Enforcement, said, "Protection of senior investors is a core mission for FINRA and why we started the FINRA Securities Helpline for Seniors. This case is a reminder to firms to ensure their supervisory systems and procedures are designed to protect senior investors from harm and to adequately follow-up on red flags to detect potential fraudulent account activity."

FINRA also found that Fidelity's inadequate supervisory systems and procedures contributed to the failure to detect and prevent Lewis's fraudulent activities. Though Fidelity maintained a report designed to identify common email addresses shared across multiple accounts, it failed to implement procedures regarding the report's use and dedicate adequate resources to the review and investigation of the reports. As a result, there was a backlog in reviewing thousands of reports, including a report in March 2012 showing that Lewis' email address was associated with dozens of otherwise unrelated accounts. The report was not reviewed by anyone at Fidelity until April 2013, more than a year after it was generated.

AWC Corrective Action Statement

Attached to the 2015 Fidelity AWC is a "Corrective Action Statement," submitted by Respondent Fidelity which, in accordance with FINRA's rules, does not constitute factual or legal findings by FINRA and does not reflect the views of the self-regulatory organization or its Staff. As published in the AWC, the "Corrective Action Statement" asserts:

Since the unlawful acts of Lisa Lewis have come to light, Fidelity has taken a number of corrective actions to enhance its supervision, monitoring and surveillance.

As a complement to its existing extensive surveillance, Fidelity has implemented two new systems. The first is multi-wire destination surveillance. This surveillance, which was already in development during the time of Lewis' misconduct, is aimed at identifying and preventing precisely the type of scheme perpetrated by Lewis.

Second, Fidelity has implemented elder financial exploitation surveillance. This system monitors for a variety of different types of money movement in accounts owned by elder customers, and is aimed at identifying and preventing the kind of activity in which Lewis engaged.

In addition, since Lewis' unlawful acts, Fidelity has enhanced its existing associate and employee training and awareness relating to senior investors generally, and elder financial exploitation specifically. Fidelity implements various techniques, training and programs to help its representatives identify and appropriately respond to instances of potential elder financial exploitation.

Bill Singer's Comment

Compliments to both DOJ and FINRA for getting on top of this case and doing so in an impressive manner. Although both the regulatory and criminal prosecution ends of this matter were too late to prevent the financial devastation of the elderly victims, justice was done in terms of Lewis's incarceration, and we should similarly applaud FINRA's effort to prompt Fidelity and other firms to implement more meaningful (and hopefully more preemptive) compliance protocols.