(HedgeCo.Net) The Securities and Exchange Commission has announced that Wedbush Securities Inc., a California-based broker-dealer, has agreed to pay more than $1.2 million to settle charges arising from the unlawful unregistered distribution of nearly 100 million shares of more than 50 different low-priced microcap companies, and from Wedbush’s failure to file suspicious activity reports (SARs) pertaining to those transactions.
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 (a/k/a Wintercap SA), a former offshore customer. The order finds that Wedbush failed to conduct a reasonable inquiry into the facts surrounding the sales, and therefore Wedbush’s offers and sales did not qualify for the usual exemption from registration that applies to brokers’ transactions. The SEC’s order also finds that, despite the presence of numerous red flags that Wedbush had identified in its written guidance to employees, Wedbush failed to file SARs for certain suspicious transactions that it executed on behalf of Silverton while the account was active, as broker-dealers 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,” said 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.”
The SEC’s order finds that Wedbush violated the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933 and the recordkeeping requirements of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8 thereunder. Without admitting or denying the SEC’s findings, Wedbush agreed to cease and desist from committing or causing violations of these provisions; to be censured; to pay payment of disgorgement and prejudgment interest of over $207,000, and a civil penalty of $1 million. The SEC’s order also directs Wedbush to engage an independent compliance consultant, who will undertake a broad review of Wedbush’s supervisory, compliance, and other policies and procedures reasonably designed to prevent violations of the federal securities laws by the firm and its employees.