The Securities and Exchange Commission said Tuesday that it charged Wedbush Securities Inc. for failing to supervise one of its registered reps, Timary Delorme, and ignoring numerous red flags indicating that Delorme was involved in a long-running pump-and-dump scheme targeting retail investors.
Delorme also agreed to settle fraud charges stemming from the same scheme, which involved trading in microcap stocks, the agency said.
Without admitting or denying the findings, Delorme agreed to entry of the order, which requires her to pay a $50,000 penalty, imposes industry and penny stock bars, and orders her to cease and desist from future violations.
The order says that Delorme has been employed at Wedbush for more than 40 years.
The SEC said that the Tuesday action against Wedbush is the third action the agency has taken against the broker-dealer since 2014.
The SEC’s investigation found that Delorme received undisclosed benefits for investing her customers in microcap stocks that were the subject of a pump-and-dump scheme orchestrated by Izak Zirk Engelbrecht, who was previously charged by the Commission and criminal authorities in separate actions.
According to the SEC’s order, Wedbush ignored “multiple signs” of Delorme’s fraud, including a customer email outlining Delorme’s involvement in the scheme and multiple FINRA arbitrations and inquiries regarding her penny stock trading activity.
“In response to these clear red flags, Wedbush conducted two flawed and insufficient investigations into Delorme’s conduct but failed to take appropriate action,” the SEC states.
Marc Berger, director of the SEC’s New York Regional Office, said in a statement that brokerage firms “play an important role in protecting retail investors from abusive conduct by brokers like Delorme. This case sends a clear message that we will not tolerate broker-dealers that fail to exercise appropriate supervision over employees, as alleged here.”
The SEC’s order instituting administrative proceedings against Wedbush charges that the broker-dealer failed to supervise Delorme with a view to preventing and detecting her violations.
The Wedbush matter will be scheduled for a hearing before an administrative law judge, who will hear the case and prepare an initial decision.
— Related on ThinkAdvisor: