Wedbush to Pay More Than $1.2M Over Unregistered Microcap Securities Sales

According to the SEC’s order, from January 2017 through September 2018, Wedbush engaged in unregistered offers and sales of large blocks of low-priced securities that were part of the unlawful, unregistered distribution of securities by Silverton SA (also known as Wintercap SA), a former offshore customer.

The order found that Wedbush failed to conduct a reasonable inquiry into the facts surrounding the sales and, as a result, its offers and sales did not qualify for the usual exemption from registration that applies to brokers’ transactions, according to the SEC.

The SEC’s order also found that, despite numerous red flags Wedbush identified in written guidance to employees, the firm failed to file SARs for certain suspicious transactions that it executed on behalf of Silverton while the account was active, as BDs are required to do when transactions are suspected to involve fraudulent activity.

“Broker-dealers have a critical obligation to inquire into the origin of any microcap security they sell, as well as an obligation to report suspicious activity relating to transactions in the markets,” according to Gurbir S. Grewal, director of the SEC’s Division of Enforcement.

“It is our expectation that they will fully perform these important gatekeeping obligations, and when they fail to do so we will hold them accountable,” Grewal said in a statement.

In 2018, the SEC and U.S. Attorney’s Office for the District of Massachusetts brought parallel actions against several related parties, including Silverton’s principal, Roger Knox, alleging a fraudulent scheme involving the deposit of blocks of the securities of low-priced microcap companies and their subsequent illegal unregistered offer and sale, the SEC noted.

(Photo: Diego M. Radzinschi/ALM)