Mutual Service Corp. faces at least one arbitration claim for allegedly failing to supervise a mortgage broker whose practice collapsed last September under the weight of a nearly $30 million fraud.
Wesley Snyder, who was also a registered representative, pleaded guilty to one count of mail fraud in November, admitting to engineering a mortgage scheme that defrauded more than 800 clients and investors of an estimated $29.2 million.
Last month, six of those investors, who lost a combined $1.2 million, filed an arbitration claim against West Palm Beach, Fla.-based Mutual Service, alleging it failed to supervise him, according to a published report.
Mutual Service is one of the broker-dealers in the network of LPL Financial of Boston and San Diego.
Mr. Snyder was a rep in Exeter Township, Pa., with Mutual Service from April 2000 through last September, according to his employment records with the New York- and Washington-based Financial Industry Regulatory Authority.
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In January, Finra barred him from the industry.
According to Finra records, Mutual Service is named in two other arbitration claims involving Mr. Snyder.
The first is for $54,000 over alleged "mortgage/refinancing" problems, and the second is for $87,000 and also deals with allegations involving a loan agreement.
The lawyer handling the $1.2 million arbitration claim against Mutual Service, John S. Chapman of Cleveland, didn't return phone calls seeking comment.
In a recent published report, however, he placed the blame squarely on the firm.
"Instead of supervising, [Mutual Service] turned a blind eye to seven years of fraudulent, illegal activity," Mr. Chapman told the Reading (Pa.) Eagle early this month. "Mutual Service put the fox in charge of the henhouse."
"Snyder ran two big Ponzi schemes out of his Reading office," Mr. Chapman was quoted as saying, referring to the style of fraud in which new money coming in is used to pay off older debts. "There was nobody looking over his shoulder or asking questions about what he was doing."
Most of the attention in the case of Mr. Snyder has focused on the 800 borrowers of his Exeter Township mortgage company, Personal Financial Management Inc.
When the company filed for bankruptcy in September, those mortgage borrowers discovered they were on the hook for higher mortgages at higher rates than they had been promised.
However, 31 investors also put more than $3.5 million into the firm, based on the promise that they were helping to fund 58 of those mortgages, according to the Reading Eagle.
Two recent hot markets — real estate and stocks — combined "could create an alluring pitch for investors," said Andrew Stoltmann, a plaintiff's attorney in Chicago. He added that he hadn't seen a recent spike in fraud claims involving mortgages.
E-mail Bruce Kelly at [email protected].
