Oppenheimer & Co. has agreed to pay a total of $20 million for improperly selling penny stocks on behalf of customers, the SEC announced Tuesday.
The fine is from two separate complaints. The SEC charged Oppenheimer with violating federal securities laws. Oppenheimer admitted the wrongdoing and agreed to pay $10 million to settle the SEC’s charges.
The company also agreed to pay an additional $10 million to settle a parallel action by the U.S. Treasury Department’s Financial Crimes Enforcement Network.
According to the SEC’s order, Oppenheimer, a full-service financial advisory firm, engaged in two courses of misconduct. The first involved aiding and abetting illegal activity by a customer and ignoring red flags that business was being conducted without an applicable exemption from the broker-dealer registration requirements.
The customer was Gibraltar Global Securities, a brokerage firm in the Bahamas that is not registered to do business in the U.S. The SEC says Oppenheimer executed sales of billions of shares of penny stocks for a supposed proprietary account in Gibraltar’s name while knowing, or being reckless in not knowing, that Gibraltar was actually executing transactions and providing brokerage services for its underlying customers, including many in the U.S.
Among the violations, the SEC says Oppenheimer failed to properly withhold more than $3 million in backup withholding taxes from sales proceeds in Gibraltar’s account.
The SEC says Oppenheimer also acted on behalf of another customer to conduct unregistered sales of billions of shares of penny stocks. The sales generated approximately $12 million in profits of which Oppenheimer was paid $588,400 in commissions. The firm’s liability stems from its failure to reasonably supervise the sales.
“Despite red flags suggesting that Oppenheimer’s customers’ stock sales were not exempt from registration, Oppenheimer nonetheless allowed unregistered sales to occur through its account, failing in its gatekeeper role,” says Andrew J. Ceresney, director of the SEC’s Division of Enforcement. “The sanctions imposed on Oppenheimer, which include admissions of wrongdoing and $20 million in monetary remedies, reflect the magnitude of Oppenheimer’s regulatory failures.”