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SEC, FINRA Enforcement: Ex-Oppenheimer Employees Fined in Penny Stock Case

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Among recent enforcement actions were charges from the Securities and Exchange Commission against three penny stock promoters for defrauding investors and a settlement from three former Oppenheimer employees resulting from unregistered penny stock sales.

Meanwhile, the Financial Industry Regulatory Authority censured and fined a firm for failing to act on suspicious activities connected to Venezuelan bonds.

SEC Fines Ex-Oppenheimer Employees in Penny Stock Case

Three former employees of Oppenheimer & Co. have agreed to settle with the SEC on charges stemming from the unregistered sales of billions of shares of penny stocks on behalf of a customer. The actions are tied to another settled enforcement action against Oppenheimer in January, in which the broker-dealer admitted wrongdoing and paid $20 million to the SEC and the Treasury Department’s Financial Crimes Enforcement Network.

Scott Eisler, a former registered representative at Oppenheimer’s branch in Boca Raton, Florida, executed billions of penny stock shares in illegal unregistered distributions. His former branch manager and supervisor Arthur Lewis participated in, and in some cases approved, the sales.

Brokers who engage in a reasonable inquiry surrounding a proposed questionable sale by a customer do have an exemption from liability, but according to the agency, Eisler and Lewis failed to make the requisite inquiry despite substantial red flags associated with the sales.

Lewis’s supervisor Robert Okin, a former head of Oppenheimer’s private client division, was found, like Lewis, to have ignored red flags — thus failing in supervisory requirements.

Eisler agreed to pay a $50,000 penalty and be barred from engaging in penny stock sales or working in the securities industry for at least one year. Lewis agreed to pay a $50,000 penalty and be barred from working in a supervisory capacity in the securities industry for at least one year. Okin agreed to pay a $125,000 penalty and be barred from working in a supervisory capacity in the securities industry for at least one year. They each agreed to the settlements without admitting or denying the SEC’s findings.

SEC Charges 3 Microcap Stock Promoters With Fraud

The SEC has charged three microcap stock scammers living in Israel after they tried to defraud investors via promotional emails touting “hot” stocks so they could sell their own shares at a profit.

According to the agency, the three men, Joshua Samuel Aaron (aka Mike Shields), Gery Shalon (aka Phillipe Mousset and Christopher Engeham), and Zvi Orenstein (aka Aviv Stein and John Avery), got shares in several penny stock companies. Then, thanks to those promotional emails, they pumped the prices as high as 1,800% before dumping the shares for at least $2.8 million in illicit proceeds.

Aaron and Shalon wrote and designed the emails, while Shalon sent them out and Orenstein handled operational support, manipulating brokerage accounts using numerous aliases, according to the SEC. In one extravagantly positive promotional email about a particular stock, they claimed that a $5,000 investment could be worth more than $250,000 in two years.

They allegedly used numerous corporate identities and developed at least 20 different stock promotion websites to con investors into buying the stocks and causing spikes in trading volume and share price.

The SEC seeks to bar them from the penny stock business and obtain their ill-gotten gains plus interest and financial penalties.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York has announced criminal charges. Firm Fined, Censured on Suspicious Venezuelan Bond Activity

FINRA censured Global Strategic Investments LLC and fined the firm $200,000 for failing to to detect, investigate, and report, where appropriate, suspicious activity related to Venezuelan bond transactions and subsequent wire activity.

According to the agency, the firm launched a new business line that immediately generated the majority of its revenues — facilitating currency exchanges through the liquidation of Venezuelan bonds for two correspondent accounts of foreign financial institutions (FFIs) located in high-risk jurisdictions, Venezuela and Curacao.

Each of the transactions occurred during the period when Venezuela’s Sistema de Transacciones con Titulos en Moneda Extranjera (SITME) (aka System of Foreign Currency Transactions), which was dismantled in February 2013, was in effect. The firm relied unreasonably on SITME and its regulation as a substitute for the firm’s own due diligence and monitoring.

The firm’s written anti-money laundering compliance program (AMLCP) addressed its obligations under AML laws and regulations, and FINRA rules, to perform due diligence at account opening, monitor account activity, and detect and investigate red flags of suspicious activity. But despite that, the firm failed to identify the money laundering risk associated with the Venezuelan bond accounts and their anticipated activity. It also failed to adjust its procedures to account for the high-risk nature of this new endeavor.

Instead, the firm primarily relied upon its new clients’ representations about the legitimacy of the transactions without conducting sufficient reasonable risk-based review to verify what the clients said. The firm’s overreliance on the clients’ representations led to failures to detect red flags that should have required additional due diligence. The firm’s policies, systems and procedures proved inadequate to monitor this new business; in addition, it failed to reasonably implement its existing AMLCP.

The firm neither admitted nor denied the findings but consented to the sanctions.

— Check out SEC Enforcement: Napkin-Eating Broker Settles; Ponzi Funds Used for Porn on ThinkAdvisor.