The United States Court of Appeals for the 9th Circuit has refused to overturn the US Securities and Exchange Commission ruling that Wedbush Securities Inc. engaged in inadequate supervision of its own regulatory compliance. The appeals court also affirmed the suspension of the brokerage firm’s president and principal Edward W. Wedbush.
The SEC’s 2016 finding had sustained a 2014 ruling by the Financial Industry Regulatory Authority’s National Adjudicatory Council, which ordered Wedbush to pay a $350K fine for either not filing, or filing late, dozens of documents regarding complaints and judgments that had been brought against the investment firm and its financial representatives. Finra found that Wedbush violated the bylaws and rules of the NASD, the NYSE, and the self-regulatory organization itself 158 times and was delinquent in submitting the documents at issue over a five-year period, from 1/2005 to 7/2010.
Wedbush and its president had tried to argue before the SEC that FINRA was wrong in finding that the broker-dealer failed to supervise reporting requirements. The brokerage firm also questioned whether the hearing it received before the SRO was a fair one since a FINRA rule did not specifically note suspension as a sanction.
The Commission, however, stated that not only did the reporting violations take place but that they continued to happen even though regulators talked to Wedbush about them. It also found that Edward Wedbush needed to be suspended in order to make sure that compliance happened moving forward.
Now, the 9th Circuit has ruled that the SEC was not wrong when it upheld his suspension by FINRA. The court called the investment firm’s violations “egregious.” The Appeals Court also said that the sanctions had to happen so that Wedbush would finally be in compliance.
It was just last month that the SEC found, in another case, that Wedbush had failed to properly supervise an employee even though there were signs that she was in involved in a pump-and-dump scam. Timary Delorme was ordered to pay $50K in civil penalties and is no longer allowed to work at a brokerage firm.
The Commission accused Wedbush of knowing that Delorme was committing penny stock fraud, yet it purportedly continued to let her make investment recommendations to customers and execute orders. In a separate order against Delorme, the regulator said that she was in violation of federal securities laws’ antifraud provisions. The SEC ordered her to pay a $50K penalty.
In February, FINRA ordered Wedbush to pay a $1.5M fine for allegedly exposing customers to risks by violating the SEC’s rules regarding net capital and customer protection and not identifying certain deficiencies. Seeing as the Commission’s Customer Protection and Net Capital Rules set up mandatory conditions so that customer securities and monies are protected—especially should a brokerage firm become insolvent—these deficiencies could have placed clients’ funds at risk.
9th Circ. Affirms Wedbush Sanctions For Reporting Violations, Law360, April 23, 2018
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SEC Proposes “Regulation Best Interests” that Would Prevent Brokers from Merely Calling Themselves Investment Adviser, Stockbroker Fraud Blog, April 20, 2018
Ex-Wells Fargo Broker Barred for Alleged $180K Elder Financial Fraud, Stockbroker Fraud Blog, February 26, 2018
Firm Executives Reportedly Were Aware of Domestic Violence Allegations Against High-Earning Morgan Stanley Broker for Years, Stockbroker Fraud Blog, April 12, 2018
Wedbush Securities Faces Failure to Supervise Charges Over Broker’s Pump-And-Dump Scam, Stockbroker Fraud Blog, March 28, 2018