A U.S. brokerage firm has been sanctioned for failing to uncover that one of its registered reps allegedly was involved in a pump-and-dump scheme targeting retail investors.
The U.S. Securities and Exchange Commission (SEC) announced a settlement with California-based Wedbush Securities Inc. that will see the firm pay a US$250,000 penalty and agree to be censured over its alleged failure to supervise a former rep, Timary Delorme.
Last March, Delorme settled allegations that she violated securities laws based on her involvement with a penny stock market manipulation scheme between 2008 and 2014. The scheme was operated by Izak Zirk Engelbrecht, who is currently serving 151 months in prison after pleading guilty to two counts of securities fraud, one count of conspiracy to commit securities fraud and four counts of wire fraud.
“As part of Engelbrecht’s scheme, Delorme bought certain stocks in her customers’ accounts, or encouraged her customers to buy the stocks, in exchange for undisclosed compensation in the form of shares and cash,” the SEC said in its order settling the case with the firm. “In addition, Delorme engaged in manipulative trading designed to create a false appearance of volume and increase or stabilize the price of securities.”
According to the SEC’s order, the firm “ignored numerous red flags” and “conducted two flawed and insufficient investigations” into Delorme’s conduct.
“Wedbush abandoned important responsibilities to its customers by looking the other way in the face of mounting evidence of manipulative conduct,” said Marc Berger, director of the SEC’s New York office. “After we filed our claim, Wedbush made significant changes aimed at reforming its practices to detect and report misconduct within its ranks.”
The SEC noted that the firm has now made changes to its senior leadership, revised its policies and procedures, improved its electronic surveillance capabilities and allocated additional resources to its internal and audit controls groups.