Wells Fargo Claws Back $3 Million from Jailed Ex-Broker

Wells Fargo Advisors has won a $3 million arbitration award against a former broker who was sentenced in 2019 to five years in prison for a long-running Ponzi scheme.

A Financial Industry Regulatory Arbitration panel held the ex-broker, John Greg Schmidt, who ran an independent practice with Wells Fargo Financial Network in Dayton, Ohio, liable for the entirety of the $2.999 million in damages Wells sought. The firm sued Schmidt in August 2019 seeking to recoup the amounts it had paid to reimburse his former customers, according to the arbitration award.

A spokeswoman for Wells Fargo declined to comment on the award or whether it expects that Schmidt, who represented himself in the case, will be able to repay the amount.

Wells Fargo has paid a total of $4.01 million in settlements with former customers of Schmidt since 2017, according to his BrokerCheck record.

Schmidt, who joined Wells in 2006 from Stifel Financial, was sentenced to prison in June 2019 after being convicted of 128 counts of fraud.

Between 2003 and 2017, Schmidt made unauthorized withdrawals from clients’ variable annuities and transferred funds from other wealthier client accounts to cover the shortfalls, the SEC said in a civil order that imposed $1.1 million in fines and restitution in March 2019. Most of his victims were vulnerable or elderly clients, including some who had Alzeimers’ or dementia and passed away during the course of the scam.

Neither Wells nor Stifel were identified in the SEC’s case. Schmidt had also earned $230,000 in commissions from his victims between 2013 and 2017, the SEC said in its initial complaint.

Wells Fargo fired Schmidt in October 2017 after allegations of “unauthorized money movement between clients” and after it was notified of inaccurate account statements, according to BrokerCheck.

The SEC, which barred Schmidt in March 2016, said the scheme unraveled after he failed to respond to an investigatory inquiry from the Ohio Department of Insurance.

Finra barred the broker in March 2018 for failing to respond to its investigatory inquiry.

Schmidt began his career at IDS Life Insurance Company in 1980, moved to Prudential-Bache in 1986, and also worked at PaineWebber and First Union Securities before joining Stifel in 2002, according to BrokerCheck.

He had just one customer disclosure on his record prior to 2017: a fraud claim in 2007 that settled for $80,000 of $500,000 requested.