SEC ALJ Finds Several Brokers Liable for Unlawful Penny Stock Sales

A Securities and Exchange Commission administrative law judge has found several brokers liable for their alleged involvement in the unlawful sale of penny stocks to investors. In re Bloomfield, the SEC had filed securities charges against Robert Gorgia, Ronald S. Bloomfield, Victor Labi, John Earl Martin Sr. and Eugene Miller. Labi, Martin, and Bloomfield were Leeb Brokerage Services registered representatives, while Miller and Gorgia were president and chief compliance officer. Leeb is no longer in operation.

The SEC contends that the defendants let customers regularly deliver blocks of privately obtained penny stocks shares into their Leeb accounts. The clients would then sell the securities to the public through unregistered securities transactions.

While Martin, Labi, and Bloomfield allegedly did not conduct reasonable inquiry prior to allowing the public sale of the stock and violated securities law registration requirements, the other two men are accused of failing to reasonably supervise the registered representatives. The SEC claims that the men let the unlawful penny stock sales occur without doing enough to investigate whether they were “facilitating illegal underwriting.” As a result, the defendants allegedly caused Leeb’s failure to submit Suspicious Activity Reports that are mandated under the Bank Secrecy Act.

ALJ Brenda P. Murray noted that the securities fraud resulted in significant financial losses for the investing public. She ordered the three stockbrokers to pay $1.39M in disgorgement. The three brokers were also ordered to pay a $100,000 civil penalty and cease and desist from future misconduct. Miller, who settled the securities charges against him last year, has agreed to supervisory suspension, a cease and desist order, and a $50,000 penalty.

Related Web Resources:

SEC Litigation (PDF)

Brokers Found Liable on Charges They Aided Unlawful Penny Stock Sales, BNA – Securities Law Daily, Alacra Store, April 28, 2011

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