In March 2019, the Securities and Exchange Commission (SEC) announced that Wedbush Securities Inc. will pay a $250,000 penalty and has agreed to be censured to settle its failure to supervise charge.
According to the SEC order, “Wedbush ignored numerous red flags indicating that one of its registered representatives was involved in a long-running pump-and-dump scheme targeting retail investors. Wedbush conducted two flawed and insufficient investigations into the registered representative’s conduct, and failed to take appropriate action.”
Since March 2018, Wedbush made changes made to senior leadership, revised policies and procedures, improved electronic surveillance, and the allocation of additional resources to internal and audit controls groups, according to the settlement.
In March 2018, the Securities and Exchange Commission (SEC) charged Wedbush Securities Inc. with failing to supervise former broker Timary Delorme (CRD# 736418) and ignoring numerous red flags indicating that Delorme was involved in a long-running pump-and-dump scheme targeting retail investors. The SEC brought cease-and-desist proceedings against Delorme who was involved in a manipulative trading scheme of a penny stock. Delorme was involved with the scheme with Izak Zirk Engelbrecht, who was charged by the Commission on September 18, 2014 with violating the antifraud and registration provisions of the federal securities laws. Engelbrecht pled guilty to one count of conspiracy to commit securities fraud, two counts of securities fraud, and four counts of wire fraud. Engelbrecht engaged in manipulative trading (e.g., “pump and dumps”) using the stocks of several microcap issuers that he and his associates controlled.
According to the SEC’s order, Wedbush ignored multiple signs of Delorme’s fraud, including a customer email outlining Delorme’s involvement in the scheme and multiple FINRA arbitrations and inquiries regarding her penny stock trading activity. Wedbush conducted two flawed and insufficient investigations into Delorme’s conduct but failed to take appropriate action.
The SEC alleges that Delorme and other registered representatives bought these stocks in their customers’ accounts, receiving undisclosed material benefits.
Delorme was barred from association with a broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or NRSRO and was sanctioned to civil and administrative penalties and fines of $50,000.
Delorme was registered with Wedbush Securities Inc. in Los Angeles, California from 1981 to April 2018, when he was terminated regarding, “Delorme was involved in a manipulative trading scheme. Delorme wilfully violated sections 17(a)1 and (3)of the securities act and sections 9(a)(2) and 10(b)of the exchange act and rules 10b-5(a) and c.”
Delorme has been the subject of three customer complaints between 2012 and 2017, according to her CRD report:
- May 2018. “Wrongful conduct, breach of fiduciary duty, constructive fraud, fraud by misrepresentation, breach of written contract.” The customer is seeking $250,000 in this pending customer complaint.
- August 2017. “Wrongful conduct, breach of fiduciary duty; constructive fraud, fraud by misrepresentation and omission; breach of written contract.” The customer is seeking $250,000 in damages and the case is currently pending.
- November 2012. “Claimant alleges registered representative lost a significant amount as a result of negligent and unsuitable recommendations and sales of risky and unsuitable securities to claimant. Claimant also alleges securities gifts by registered representative were an attempt to make up losses in her accounts. Complaint includes claims for negligence and breach of fiduciary duty; breach of contract; and violation of California Securities Law.” The customer sought $100,000 in damages and the case was settled for $50,000.
- October 2012. “Statement of claim includes claims for fraud, deceit, misrepresentation and omission of material fact; negligence, unsuitability, unauthorized trading, violation of California Corporations Code Section 25216 and SEC rule 10b-10, 25400 and 25401; intentional infliction of emotional distress; extortion; and breach fiduciary.” The customer sought $750,000 in damages and the case was settled for $265,000.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Wedbush Securities may be liable for investment or other losses suffered by its customers.
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