According to the US Securities and Exchange Commission (SEC), Wedbush Securities has settled allegations accusing the brokerage firm of failing to supervise one of its former registered representatives, Timary Delorme, who is accused of engaging in a pump-and-dump fraud that harmed retail investors. As part of the settlement, Wedbush consented to a censure and will pay a $250K penalty.
The SEC filed this civil securities case against Wedbush a year ago, accusing the broker-dealer of not properly investigating red flags indicating that Delorme might have been defrauding investors. The former Wedbush broker is accused of, from 2008 to 2014, receiving payments, which were issued to her husband, in exchange for recommending to investors that they make certain trades that were then used in the pump-and-dump fraud.
The regulator said that Wedbush even disregarded an email from a customer reporting the fraud, as well as a number of Financial Industry Regulatory Authority (FINRA) arbitrations claims and inquiries over Delorme’s trading activities involving penny stocks. Instead, contends the Commission, Wedbush performed two inadequate probes into the allegations against its former broker but didn’t take proper action.
Delorme worked at Wedbush for over 40 years. In the SEC’s investor fraud case against her, she settled without denying or admitting to the findings and was ordered to pay a $50K penalty. Industry and penny stock bars were imposed against her. Meantime, her alleged co-conspirator, Izak Zirk Engelbrecht, pleaded guilty to securities fraud related to the pump-and-dump scam and was sentenced to 12 years in prison.
In a pump-and-dump fraud, those involved work to artificially inflate a stock’s price. Once enough of these stocks are sold at that higher price, the scammers then sell the shares they are holding, causing the stock’s price to plunge and the new investors to lose money on their investments. Typically, smaller stocks are targeted in this type of fraud as they are easier to manipulate.
Noting past charges brought against Wedbush, SEC officials last year referred to the firm as a “recidivist” brokerage firm—the term “recidivist” implying that the broker-dealer was considered a repeat offender. The SEC’s case against Wedbush over Delorme in March 2018 was already the second one brought against the firm that year. The earlier case resulted in the broker-dealer agreeing to pay a $1M penalty and about 250K in disgorgement, as well as prejudgment interest, for violating the Customer Protection Rule.
The regulator said that in the case of Delorme, Wedbush not only failed to reasonably supervise its former broker, but also it lacked the reasonable policies and systems that would have allowed the firm and its supervisors to properly oversee her.
If you were represented by a Wedbush broker and believe your losses may be due broker fraud and/or the inadequate supervision by the brokerage firm, contact Shepherd Smith Edward, LLP (SSEK Law Firm) today. We represent retail investors, high net worth individual investors, and institutional investors in helping them to recover their losses caused by brokerage firm negligence, broker fraud, and other kinds of securities fraud.