Wedbush to Pay More Than $1.2M Over Unregistered Microcap Securities Sales
Regulation and Compliance > Federal Regulation > SEC
by Jeff Berman
Wedbush brokers allegedly made unregistered microcap securities sales and failed to report suspicious transactions.
Without admitting or denying the SEC's findings, Wedbush agreed to be pay disgorgement and prejudgment interest of over $207,000.
The firm also agreed to pay a civil penalty of $1 million, the SEC said.
Wedbush Securities has agreed to pay more than $1.2 million to settle charges by the Securities and Exchange Commission regarding allegedly unlawful microcap securities sales by the broker-dealer's reps, the SEC said on Wednesday.
Almost 100 million shares of the securities in question for more than 50 low-priced microcap companies were involved, the SEC said in an order.
Wedbush also failed to file suspicious activity reports (SARs) pertaining to those transactions, the SEC alleged.
The firm declined to comment on Thursday.
The SEC's order found that Wedbush violated the registration provisions of the Securities Act of 1933 and the recordkeeping requirements of the Securities Exchange Act of 1934.
Without admitting or denying the SEC's findings, Wedbush agreed to cease and desist from committing or causing these securities violations again, the SEC said.
Wedbush also agreed to be censured, to pay disgorgement and prejudgment interest of over $207,000, and a civil penalty of $1 million, according to the SEC.
The SEC's order also directed Wedbush to engage an independent compliance consultant to undertake a broad review of the BD's supervisory, compliance and other policies and procedures reasonably designed to prevent violations of the federal securities laws by the firm and its employees.
According to the SEC's order, from January 2017 through September 2018, Wedbush engaged in unregistered offers and sales of large blocks of low-priced securities that were part of the unlawful, unregistered distribution of securities by Silverton SA (also known as Wintercap SA), a former offshore customer.
The order found that Wedbush failed to conduct a reasonable inquiry into the facts surrounding the sales and, as a result, its offers and sales did not qualify for the usual exemption from registration that applies to brokers' transactions, according to the SEC.
The SEC's order also found that, despite numerous red flags Wedbush identified in written guidance to employees, the firm failed to file SARs for certain suspicious transactions that it executed on behalf of Silverton while the account was active, as BDs are required to do when transactions are suspected to involve fraudulent activity.
"Broker-dealers have a critical obligation to inquire into the origin of any microcap security they sell, as well as an obligation to report suspicious activity relating to transactions in the markets," according to Gurbir S. Grewal, director of the SEC's Division of Enforcement.
"It is our expectation that they will fully perform these important gatekeeping obligations, and when they fail to do so we will hold them accountable," Grewal said in a statement.
In 2018, the SEC and U.S. Attorney's Office for the District of Massachusetts brought parallel actions against several related parties, including Silverton's principal, Roger Knox, alleging a fraudulent scheme involving the deposit of blocks of the securities of low-priced microcap companies and their subsequent illegal unregistered offer and sale, the SEC noted.
(Photo: Diego M. Radzinschi/ALM)