SMH Capital and Two of Its Brokers to Settle FINRA Charges Over Oversight Failures

SMH Capital has agreed to pay $450,000 in fines to settle charges by the Financial Industry Regulatory Authority (FINRA) over the broker dealer’s failure to have supervisory procedures and systems in place to handle its prime brokerage and soft dollar services to hedge funds. The oversight led to a hedge fund manager receiving improper payments in soft dollars worth $325,000.

FINRA says other failures by SMH included producing and giving out hedge fund sales materials that failed to properly “disclose material investment risks to potential hedge fund investors.” SRO is accusing SMH of engaging in an “improper compensation arrangement” with two brokers who supervised hedge funds.

The two SMH brokers, Michael Rosen and Jack Seibal, have agreed to $100,000 fines and a 20-day suspension. SRO says that agreements prohibited the two men from receiving a share of any commission that SMH earned for fund trades. A third unregistered SMH employee agreed to a 10-day suspension and a $15,000 penalty.

FINRA says that SMH had relationships with over 15 hedge funds. Hedge fund managers were offered “a platform of services,” including marketing support, office space, and introductory capital. The services were paid for via commissions on trades that were directed to SMH.

Due to what FINRA calls SMH’s failure to have policies and procedures to regulate soft dollars, one hedge fund manager received $325,000.

SMH issued the payment after the manager submitted an invoice asking for two checks. $75,000 was to be issued to someone else for consulting services and the second check, a little under $250,000, was to be issued to the manager as a reimbursement for research costs. A description of the consulting services was not provided with the invoice.

FINRA says the invoice should not have been paid and that SMH would have determined this also if they had looked into the matter.

Investors who have lost money because of the misconduct of a broker or broker-dealer have legal rights and are entitled to get their money back. Retaining a stockbroker fraud attorney to represent you can offer you the best chances for success. Contact Shepherd Smith and Edwards today.

Related Web Resources:

SMH Capital Fined $450,000 for Procedural Failures Regarding Soft Dollar Payments, Finra, January 9, 2008
SMH Capital

FINRA