The US Securities and Exchange Commission has filed civil charges against Wedbush Securities Inc. The regulator is accusing the brokerage firm of not supervising registered representative Timary Delorme, 59, and disregarding warning signs that she was involved in a pump-and-dump fraud that targeted retail investors. Delorme has settled the SEC’s charges against her.
According to the SEC, Delorme took part in certain trades to manipulate the stocks. She received benefits, which were paid to her spouse, for getting customers to invest in microcap stocks that were part of a pump-and-dump fraud run by Izak Zirk Engelbrecht, who also has been subject to civil, as well as criminal charges. Engelbrecht, previously called Izak Zirk de Maison before adopting his wife’s last name, is accused of running the scam that involved microcap company Gepco Ltd.
Also, Delorme and her husband are accused of selling shares for Engelbrecht and sending him the money for the sales while she was paid a commission. This purportedly allowed Engelbrecht to hide the sales.
Delorme has been with Wedbush for 42 years. She previously settled two complaints brought against her but did not admit liability in either.
Meantime, Wedbush is accused of not paying attention to certain red flags, including an email by a customer detailing Delorme’s part in the fraud and a number of Financial Industry Regulatory Authority arbitrations and inquiries about penny stock trading in which she was involved. Among the arbitration claims brought was one brought by four Wedbush customers who accused Delorme of soliciting their money for investments with penny stock issuers while promising that there would be no losses. They accused her of trying to manipulate securities that were in their accounts.
The SEC acknowledged that Wedbush had conducted two probes into Delorme and her activities but that they were “insufficient” and the broker-dealer had purportedly neglected to “take proper action.” In a news release announcing the administrative proceedings, the regulator called the brokerage firm “recidivist,” meaning a repeat offender. A hearing will be scheduled regarding the SEC’s administrative case against Wedbush.
Meantime, Delorme, who settled the SEC charges against her without denying or admitting to the findings that she violated federal securities laws’ antifraud provisions, will pay a $50K penalty and be subject to penny stock and industry bars. She also must cease and desist from committing further violations.
Wedbush Settles Regulator and Other Cases
This is already the second civil action brought against Wedbush this year. In February, the Financial Industry Regulatory Authority and the SEC fined the firm $2.5M to settle allegations of violations involving customer protection and net capital. Wedbush was ordered to disgorge nearly $300K.
Last year, Wedbush paid $600K in settlements. The broker-dealer’s founder, Ed Wedbush is still in the middle of disputing a Finra enforcement decision from 2015 accusing him of supervisory reporting violations. While the SEC and Finra’s appeals body have upheld the initial enforcement ruling, now the brokerage firm has taken its case to the 9th circuit.
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