The Securities and Exchange Commission has charged Wedbush Securities Inc. with failing to supervise a broker and ignoring "numerous red flags" that she was involved in a long-running pump-and-dump scheme.
In a release, the SEC said its action was the second against the firm this year and the third since 2014 for failing to supervise brokers who were involved in fraudulent transactions. The SEC has asked for a hearing before an administrative law judge, who will hear the case and prepare an initial decision.
For her role in directing her customers to invest in microcap stocks that were the subject of a pump-and-dump scheme, broker Timary Delorme received "undisclosed benefits," the SEC said. It noted that the scheme was led by Wedbush broker Izak Zirk Engelbrecht, who was charged by the commission and criminal authorities in separate actions in the past.
According to the SEC, Wedbush ignored several signs of Ms. Delorme's fraud, including a customer email that outlined the broker's involvement and several arbitrations and inquiries by the Financial Industry Regulatory Authority Inc. regarding her penny-stock trading activity.
In response, said the SEC, "Wedbush conducted two flawed and insufficient investigations into (Ms.) Delorme's conduct but failed to take appropriate action."
The SEC said Ms. Delorme has agreed to settle fraud charges stemming from the scheme by paying a $50,000 penalty and agreeing to be barred from the securities industry.
"'Brokerage firms play an important role in protecting retail investors from abusive conduct by brokers like Delorme," said Marc P. Berger, director of the SEC's New York Regional Office. "This case sends a clear message that we will not tolerate broker-dealers that fail to exercise appropriate supervision over employees, as alleged here."