First Allied Securities Inc. has agreed to pay $1.95 million to settle charges that it failed to supervise a broker who allegedly engaged in fraudulent trading, according to the Securities and Exchange Commission.
The settlement is tied to the SEC's case against former First Allied broker Harold H. Jaschke. The SEC alleges that between May 2006 and March 2008, Jaschke executed numerous unauthorized transactions, made unsuitable recommendations and churned the accounts of the City of Kissimmee, Fla., and the Tohopekaliga Water Authority in Florida.
The SEC also found that First Allied failed to pick up on the churning and suitability problems.
First Allied waited nine months before contacting the municipalities through self-described "annual review" letters that, in actuality, did not relate to annual reviews, according to the SEC. The letters failed to alert them about the suspicious trading activity occurring in their accounts.
The SEC also found that First Allied had no system in place to monitor compliance with its rule prohibiting its brokers from using personal e-mail accounts to conduct business. Jaschke used his personal e-mail account to send and receive business-related e-mails that were neither reviewed nor retained by the firm, according to the SEC. The SEC's order also found that First Allied failed to retain certain business-related e-mails sent to and from its employees, as required under law.
"Supervising registered representatives is a job that must be taken seriously by broker-dealers," said Rosalind Tyson, director of the SEC's Los Angeles office. "By failing to establish reasonable systems to prevent Jaschke's misconduct, First Allied did not fulfill its obligation to reasonably supervise its registered representatives."
In addition to the $1.95 million payment, First Allied also agreed to hire of an independent consultant to review its implementation of policies and procedures, according to the SEC. First Allied consented to the order without admitting to or denying the SEC's findings.
"After considering the surrounding circumstances, the current regulatory environment, and the expense and uncertainty associated with litigation, the firm determined that it was in its best interest to settle this matter," First Allied said in a press release.