Aegis Capital Corp. must pay $950,000 to resolve allegations that it engaged in the improper sales of billions of shares of unregistered penny stock. The securities case was brought by the Financial Industry Regulatory Authority last August. According to the self-regulatory organization, the New York-based brokerage firm facilitated a penny stock scheme that resulted in $24.5 million in customer profits and $1.1 million in commissions. Aegis is also accused of supervisory lapses related to anti-money laundering.
The SRO said that from April 2009 to June 2011 the brokerage firm liquidated about 3.9 billion shares of five penny stocks that were unregistered even though they should have been registered with the Securities and Exchange Commission. Also, FINRA contends, Aegis and compliance officers disregarded red flags related to the transactions.
For example, an ex-securities broker who was barred from the industry was the one who referred the customers involved to Aegis. This broker controlled the activity in a number of accounts at the firm. Without looking further into this questionable scenario, Aegis sold the unregistered shares.
FINRA said that the securities violations occurred in part because of supervisory failures by Aegis and its two Chief Compliance Officers, Kevin C. McKennna and Charles D. Smulevitz. The SRO claims that not only did the two men fail to implement Aegis’s anti-money laundering policies and procedures but also they did not act to reasonably detect and probe the red flags warning of potentially suspect activities. The regulator said that McKenna and Smulevitz should have looked at the deposits of unregistered securities which were quickly followed by liquidations, as well as periods of suspect promotional activity that led to large daily trading volume percentages.
By settling Aegis, McKenna, and Smulevitz are not denying or admitting to the allegations. They have, however, consented to an entry of FINRA’s findings.
Smulevitz has consented to a 30-day principal suspension and a $5,000 fine. McKenna has agreed to a 60-day suspension and a $10,000 fine.
Also, in a separate proceeding, Aegis CEO and President Robert Eide, received a 15-day suspension and was fined $15,000 for not disclosing over 640,000 in liens that were outstanding.
The FINRA fine against Aegis comes just days after the SEC resolved charges with three former Oppenheimer & Co. (OPY) employees for purportedly selling billions of shares of penny stocks for a customer. The sales were unregistered and related to an action brought earlier by the Commission and the U.S. Treasury Department’s Financial Crimes Enforcement Network against the broker-dealer. Oppenheimer paid $20 million to them to resolve the case and admitted wrongdoing. The firm was accused of failing to report misconduct by one client and its customers, not dealing with red flags, letting unregistered sales go through, and other lapses and violations.
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