Money from a brokerage company mistake?

[boilerman]

I had a conversation recently with a friend who told me that his stock brokerage account had an error show up about two years and he had a mystery deposit of $50,000 cash made into his account. I swear this happened to a friend and NOT me!

I suggested to him that the money is not his and he should contact the company and identify the mistake, but he said that it's not his mistake and he has chosen to do nothing. The money has sat in his account for a couple of years in cash.

Aside from the morality of it all, what liability does he have in not reporting the mistake? If there a statute of limitation (or whatever it would be called) for a brokerage company to find and correct the error (my friend lives on Florida.) I would assume that if the company found the error they would immediately take back the money with whatever paltry interest has been earned, but what if he closed his account and moved to another brokerage company?

Anyone have experience with this kind of situation?

 

[LARS]

I find it totally implausible that a brokerage firm made a $50,000 error and has not uncovered it in two years.

Has he been getting 1099's for the $50,000?

 

[boilerman]

I know, it is hard to imagine that a major brokerage house would not catch such a large error but it is true. I think that's one of the reasons he didn't doing anything, because he assumed they would catch the error and correct it.

And yes, the money and interest on the money is reported on the 1099.

 

[rbmrtn]

And yes, the money and interest on the money is reported on the 1099.

The 1099 should state what and where it came from, dividends, interest, capital gains. If it on a 1099 then he would be liable for the taxes I would think,

 

[MRG]

I find it totally implausible that a brokerage firm made a $50,000 error and has not uncovered it in two years.

Has he been getting 1099's for the $50,000?

I agree it does not happen. If it did the mistake is probably his, not understanding his balance or statements.
I spent a couple of decades in the industry. Seen all kinds of things go wrong. There is no 'lost' money that is not caught.

Of course I've been wrong before.

MRG

 

[Rustward]

I think this is remotely possible. I also think it is highly unlikely that this would go undetected, but again, I believe it is possible.

Have your "friend" read the fine print on his brokerage agreement. He might find something about "timely reporting of all errors". It is also possible, as MRG said, that this is your friends error.

Somewhere on this site I saw something like: "You have to like what you see when you look in the mirror." Personally, I don't think I could live with myself if I did not get an explanation from the brokerage.


A little OT: About 30+ years ago I attempted to withdraw $100 from my checking account through an ATM, as a friend and I were going for pizza. No, I didn't need it all for pizza. Anyway, the ATM gave me six crisp new $20 bills with consecutive serial numbers. This was on a Saturday. On Monday I went into the bank lobby and told my story. The bank was very suspicious that I would be returning the extra $20 bill, but they took it, and I had to sign something -- don't remember what it was.

 

[pb4uski]

I also worked in the FS industry for year but not brokerage, but I agree it is highly unlikely that the firm would make a mistake of that magnitude that would not be detected and corrected and the more likely cause is your friend being confused.

Also, the party who was supposed to receive the $50k would likely have noticed it an complained.

If i were your friend I would try to find out more about the mysterious credit and solve the puzzle. What kind of income did the 1099 say it was in the year he received it?

 

[boilerman]

The 1099 should state what and where it came from, dividends, interest, capital gains. If it on a 1099 then he would be liable for the taxes I would think,

It showed up as cash deposit to the account. We talked about the possibility that the money was deposited into the wrong account, but it doesn't make sense that someone would not notice the absence of the money in their account after the deposit.

 

[boilerman]

I also worked in the FS industry for year but not brokerage, but I agree it is highly unlikely that the firm would make a mistake of that magnitude that would not be detected and corrected and the more likely cause is your friend being confused.

Also, the party who was supposed to receive the $50k would likely have noticed it an complained.

If i were your friend I would try to find out more about the mysterious credit and solve the puzzle. What kind of income did the 1099 say it was in the year he received it?

Well everyone seems to agree that this is very unlikely but I don't think my friend is confused about this money. I don't think he wants to solve the puzzle, he'd rather keep the money. I'm worried that he could face legal problems and therefore my questions

I don't agree with how he'd dealing with this and I told him so. But this really is a friend of mine and not me.

 

[boilerman]

Have your "friend" read the fine print on his brokerage agreement. He might find something about "timely reporting of all errors". It is also possible, as MRG said, that this is your friends error.

I doubt he's read the fine print in the agreement. He's taking the "maybe if I ignore this for a few more years I'll get to keep the money" approach. But it is a good suggestion, they must have some language in those never-ending legal agreements you have to sign to open an account.

 

[daylatedollarshort]

There was a story in the Guardian about something similar happening in the UK:

http://www.theguardian.com/money/2013/feb/09/26000-banking-error

A woman transferred money to a stranger's account by mistake using an online banking transfer program, and didn't notice the mistake for two years.

 

[Walt34]

Yes, he does owe the money to the brokerage. Aside from the civil liability covered in the contract verbiage he might also face criminal charges if the state could prove that he both knew about the mistake and chose not to inform the brokerage.

When I was doing criminal fraud investigations I had a few cases in which a depositor or the bank mistakenly deposited funds to the incorrect account. Usually that is resolved amicably (Oops, we made a mistake, give it back) but in those criminal cases the one receiving the funds grabbed the money and ran after closing the account. It isn't manna from heaven, it's theft.

And when the dust settles not only will he have to give back the $50k, he'll probably spend another $20-$50k on attorney's fees.

 

[LARS]

Slightly off point. Many years ago I received a 1099 for interest on a bond portfolio of approximately $800,000. I, of course, immediately contacted the bank and said I'd be happy to pay the tax on the interest if the bank would give me the bonds. Surprise, surprise, they solved the problem quickly.

Still think it is highly unlikely. More likely your friend is jerking your chain...

 

[boilerman]

There was a story in the Guardian about something similar happening in the UK:

http://www.theguardian.com/money/2013/feb/09/26000-banking-error

A woman transferred money to a stranger's account by mistake using an online banking transfer program, and didn't notice the mistake for two years.

I'm thinking now that this is most likely explanation, that someone made a deposit into the wrong account. If I can convince my friend of this, maybe he'll return the money.

 

[boilerman]

Yes, he does owe the money to the brokerage. Aside from the civil liability covered in the contract verbiage he might also face criminal charges if the state could prove that he both knew about the mistake and chose not to inform the brokerage.

When I was doing criminal fraud investigations I had a few cases in which a depositor or the bank mistakenly deposited funds to the incorrect account. Usually that is resolved amicably (Oops, we made a mistake, give it back) but in those criminal cases the one receiving the funds grabbed the money and ran after closing the account. It isn't manna from heaven, it's theft.

And when the dust settles not only will he have to give back the $50k, he'll probably spend another $20-$50k on attorney's fees.

Thanks, this is helpful

 

[travelover]

I'm thinking now that this is most likely explanation, that someone made a deposit into the wrong account. If I can convince my friend of this, maybe he'll return the money.

Probably mob money. I hope he has changed his name and gone underground.

 

[daylatedollarshort]

I'm thinking now that this is most likely explanation, that someone made a deposit into the wrong account. If I can convince my friend of this, maybe he'll return the money.

It could be someone elderly that made a mistake, or maybe someone that made a transfer mistake and then got hit by a car and is now in a nursing home.

I can think of a lot more scenarios like that to make your friend feel guilty for keeping the money if you need them. Or just show him the Guardian article. If he has any conscience at all that should do it.

 

[TrvlBug]

I'm thinking now that this is most likely explanation, that someone made a deposit into the wrong account. If I can convince my friend of this, maybe he'll return the money.

This is what happened to me...except I was the dumba$$ who didn't notice for 2 years, that the funds weren't deposited into my core account. Unfortunately, I picked the last day of Nov. to process the yearly RMD distribution from my inherited IRA into my core account. No problem for 2 years and the following year, the debit occurred, however, I forgot to check Dec. statement for the incoming transfer. Noticed it 2 years later, called the firm, they investigated and I had my $ a couple of days later.

They stated it was transferred into someone else's account, however, I have difficulty with that explanation as I would think this yearly transaction would be automated and it was handled properly for 2 years prior to the hiccup. Needless to say, the transaction now takes place in mid-Nov within the same statement cycle! And, it was nowhere near $50K...I would have noticed!

 

[rbmrtn]

It showed up as cash deposit to the account. We talked about the possibility that the money was deposited into the wrong account, but it doesn't make sense that someone would not notice the absence of the money in their account after the deposit.

Doesn't make sense. You don't get a 1099 for cash deposits. If you got a 1099 it's going to show who paid it and what it was for.

I guess I could see someone having sent in a deposit and gotten put in the wrong account, but even that is done electronically, with account numbers scanned from deposit slips. Also hard to believe if another party made the mistake they have not come looking for it.

 

[boilerman]

This is what happened to me...except I was the dumba$$ who didn't notice for 2 years, that the funds weren't deposited into my core account. Unfortunately, I picked the last day of Nov. to process the yearly RMD distribution from my inherited IRA into my core account. No problem for 2 years and the following year, the debit occurred, however, I forgot to check Dec. statement for the incoming transfer. Noticed it 2 years later, called the firm, they investigated and I had my $ a couple of days later.

They stated it was transferred into someone else's account, however, I have difficulty with that explanation as I would think this yearly transaction would be automated and it was handled properly for 2 years prior to the hiccup. Needless to say, the transaction now takes place in mid-Nov within the same statement cycle! And, it was nowhere near $50K...I would have noticed!

Thanks, this seems like the most likely scenario.

 

[braumeister]

The first thing I thought of was what Walt34 expressed very clearly above.

I think he's exactly right.

 

[boilerman]

Doesn't make sense. You don't get a 1099 for cash deposits. If you got a 1099 it's going to show who paid it and what it was for.

I guess I could see someone having sent in a deposit and gotten put in the wrong account, but even that is done electronically, with account numbers scanned from deposit slips. Also hard to believe if another party made the mistake they have not come looking for it.

Sorry if this wasn't clear - it showed up as a deposit to the account and the 1099 was for the interest accrued from the money being held in cash.

I actually don't use deposit slips for deposits to my brokerage account. I just don't have any so I print out a letter with my name and account number asking to deposit the check into my account. No deposit slip to scan so human error could occur. ...hmmm, maybe I'll get some deposit slips for myself