A broker-dealer settled SEC charges concerning (i) the offer and sale of unregistered microcap securities, and (ii) failure to file suspicious activity reports for transactions the firm executed as agent for one of its offshore customers.
According to the SEC Order, the broker-dealer failed to take reasonable steps to determine whether or not shares of low-priced securities deposited with the broker-dealer by one of its customers were registered. The Order notes that the broker-dealer had a form specifically designed to enable it to conduct a reasonable inquiry for the purposes of the exemption under Securities Act Section 4(a)(4) with respect to the deposit of low-priced securities. However, the broker-dealer failed to follow its own written supervisory procedures that required review by employees and the broker-dealer's Sales Office Manager of the requirements of SA Rule 144.
The broker-dealer also did not sufficiently train its employees on how to discern and avoid participating in unregistered offerings of securities, according to the SEC. The Order states that the broker-dealer's employees "lacked a sufficient understanding of the requirements for exemptions from registration and could not meaningfully assess information provided by [the customer] about its deposits." Furthermore, the SEC found the broker-dealer failed to verify whether the information provided by the customer about such deposits was accurate. As a result, the broker-dealer accepted the customer's deposits of low-priced securities, and engaged in the offer and sale of the securities at the direction of the customer, even though no registration statement had been filed or was in effect for such securities.
In addition, the SEC Order stated (i) the broker-dealer overlooked numerous red flags that should have indicated suspicious customer transactions, and (ii) the registered representative assigned to the customer's accounts did not file suspicious activity reports with respect to the transactions.
As a result of the broker-dealer's failures, the broker-dealer was found in violation of Securities Act Sections 5(a) and 5(c), as well as Section 17(a) of the Exchange Act and Rule 17a-8 thereunder.
To settle the charges, the broker-dealer agreed to (i) a censure; (ii) disgorgement of $173,508.40, along with prejudgment interest of $34,332.15; and (iii) a civil penalty of $1 million. The broker-dealer also agreed to comply with the undertakings described in the SEC Order.
Primary Sources
- SEC Press Release: Wedbush Securities Charged with Unregistered Sales of Microcap Securities and Failing to Report Suspicious Transactions
- SEC Order in the Matter of Wedbush Securities Inc.
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