The U.S. Financial Industry Regulatory Authority has fined five broker-dealers, including RBC Capital Markets, a total of $US385,000, for the illegal sale of more than 8 billion shares of penny stock on behalf of their customers.

FINRA said Tuesday that most of those illegal sales involved one penny stock company, Universal Express Inc. It reports that the firms executed these sales despite the fact that the U.S. Securities and Exchange Commission filed a complaint in early 2004 alleging that Universal Express had issued more than 500 million shares of unregistered stock, charging its CEO and others with issuing a series of false press releases and other false and misleading statements to promote the sale of that unregistered stock.

Together, the five firms sold more than 7.5 billion shares of that company’s unregistered stock, FINRA says. It found that the firms’ customers deposited large blocks of thinly traded securities in certificate form and then immediately liquidated those positions. In addition to the penny stock sales, FINRA found that four of the five firms, including RBC Capital Marekts, failed to establish, maintain and enforce a reasonable supervisory system designed to prevent the sale of unregistered stock.

According to FINRA, from June 2006 through October 2007, RBC Capital Markets and a predecessor entity, Carlin Equities LLC, executed customer sell orders for nearly 2.5 billion unregistered shares of eight issuers, including over two billion shares of unregistered Universal Express stock.

RBC Capital Markets, which earned $US68,000 in commissions, was fined $US135,000. Additionally, Fagenson & Co., Inc., was fined $US165,000; Alpine Securities Corporation was fined $US40,000; Equity Station, Inc. was fined $US25,000; and, Olympus Securities, LLC. was fined $US20,000. In settling these matters, the firms neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

“Brokerage firms are the first line of defense when it comes to preventing the illegal distribution of unregistered securities into the public markets,” said James Shorris, FINRA executive vice president and executive director of enforcement. “The failure to detect and prevent these sales creates serious risks to the unsuspecting customers who purchased these unregistered securities.”

IE