SEC Obtains Final Judgment Against Individual for Acting as Unregistered Broker-Dealer

The US District Court for the Southern District of Florida issued a final judgment against an individual and his firm for buying and selling securities without registering as broker-dealers. 

According to an SEC Enforcement Release, the SEC alleged that the defendants (one of which was voluntarily dismissed) effected transactions in securities for others and bought and sold securities for their own accounts. The SEC further alleged that the defendants raised tens of millions of dollars on behalf of over a dozen issuers and engaged in buying and selling millions of dollars' worth of securities for their own accounts. 

The SEC said that the defendants entered into agreements with over a dozen issuers or their underwriters to solicit investors to purchase the issuers' securities, receiving commission-based compensation in the form of cash and stock warrants. The SEC said it found that the individual defendant sent mass emails to prospective investors and engaged in one-on-one communications, soliciting investors and providing advice on the merits of purchasing certain stocks. Additionally, defendants allegedly retained a network of approximately 60 subcontracted salespeople to solicit investors in exchange for commissions. The SEC also claimed that defendants engaged in "private transactions," buying pre-IPO shares from shareholders at one price and selling those shares at a markup, without registering as broker-dealers.

The SEC charged the defendants with violations of SEA Section 15(a)(1) ("Registration and regulation of brokers and dealers") and charged the individual, as a control person, with violations of SEA Section 20(a) ("Liability of controlling persons and persons who aid and abet violations").

In the final judgment, the Court (i) enjoined the defendants from acting as unregistered brokers or unregistered dealers; (ii) ordered them to pay a total penalty of $5,750,000; and (iii) barred them from participating in an offering of penny stock for three years.