Wedbush Securities Inc. of Los Angeles has been fined more than $1.2 million for securities violations tied to its involvement in an international micro-cap fraud scheme, the U.S. Securities and Exchange Commission announced.
The fine was part of an agreement the broker-dealer entered into with the SEC to resolve the charges, the agency said. As is usual in such consent agreements, the company neither admitted to nor denied the SEC's accusations.
The SEC charged that, between January 2017 and September 2018, Wedbush engaged in unregistered offers and sales of nearly 100 million shares of low-priced stocks for 50 companies that were part of an unlawful distribution of securities by "purported" Swiss asset manager Silverton SA (now known as Wintercap SA), a former offshore customer of Wedbush.
In 2018, the agency said, the SEC and the U.S. Attorney’s Office in Massachusetts "brought parallel actions against a number of related parties, including Silverton’s principal, Roger Knox, alleging a fraudulent scheme involving the deposit of blocks of the securities of low-priced micro-cap companies and their subsequent illegal unregistered offer and sale."
When the plot was uncovered, authorities said that Silverton essentially acted as a middle man in the scheme by acting as a front for insiders at the micro-cap companies who were secretly dumping their personal stock holdings into the market.
The SEC alleged that Wedbush should have been aware of the unlawful activity tied with the sale of the micro-cap stocks.
"Despite the presence of numerous red flags that Wedbush had identified in its written guidance to employees, Wedbush failed to file SARs (suspicious activity reports) for certain suspicious transactions that it executed on behalf of Silverton while the account was active, as broker-dealers are required to do when transactions are suspected to involve fraudulent activity," the SEC said in the press release.
A spokesperson for Wedbush said in an email that the company had no comment.
The company was charged with participating in the unlawful distribution, failing to report suspicious activity related to the distribution and failing to conduct a "reasonable inquiry" into the sales, according to the SEC.
The company engaged in the offerings despite numerous red flags, including Silverton's repeated pattern of selling large quantities of thinly traded shares soon after depositing them with Wedbush and quickly withdrawing the proceeds, the SEC said.