WFG Investments Inc. has agreed to pay a $200,000 fine to the Financial Industry Regulatory Authority Inc. over alleged lapses that led it to miss a stock-fraud scheme.
Finra signed off last week on the settlement, which stems from a pump-and-dump operation run in 2006 and 2007 by John Mazzuto, former chief executive of Industrial Enterprises of America Inc., and James Margulies, the company's former CFO and general counsel.
Enforcers at Finra claimed WFG failed to supervise sales of nearly $18 million of restricted stock of Industrial Enterprises of America. Mr. Margulies, through accounts he opened at WFG, sold illegal shares to buyers he had located.
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“WFG failed to conduct an independent inquiry to determine whether the shares … were freely tradable,” according to the settlement.
The brokerage firm, which has 115 branch offices and about 240 brokers, also agreed to a censure and a review of its supervisory procedures.
Mr. Mazzuto pleaded guilty to the fraud in January 2011 and is serving a 4½-year prison term.
WFG consented to the settlement, neither admitting nor denying the allegations.
Wilson Williams, founder of WFG, said the firm handled about 20 unsolicited trades in Industrial Enterprises for a mutual fund client, but the stock delivered from the Depository Trust Company turned out to be restricted.
“We fought the case for several years because we thought we'd done everything we could” to ensure the stock was tradable, Mr. Williams said.
“But we wanted to quit spending money on litigation and decided to settle,” he said.
Mr. Margulies was convicted in July 2011 and is serving a seven- to 21-year sentence.
The Industrial Enterprises fraud reportedly involved a total of $110 million in illegal stock sales.
