Publicly available records provided by the Securities and Exchange Commission (SEC), as well as a March 27, 2018 report by Investment News indicate that the SEC has charged Wedbush Securities in connection to alleged supervisory failures. Fitapelli Kurta is interested in speaking to investors who have complaints regarding Wedbush Securities (CRD# 877).
According to the SEC’s complaint, Wedbush failed in its supervisory duty over a broker who participated in a pump-and-dump scheme, and ignored “numerous red flags” of this conduct. The broker, Timary Delorme, allegedly “engaged in manipulative trading activity of penny stocks over multiple years,” and though Wedbush was aware of some of her activity in 2012 and 2013, its supervisory policies did not provide sufficient guidance as to how staff should investigate her activity. The SEC notes that in late 2012 and 2013, her supervisors reviewed an email describing her role in fraudulent penny stock transactions; received copies of two FINRA arbitrations in which her clients alleged her role in investments in the same penny stock issuers as the previously mentioned transactions; became aware of a “FINRA inquiry into her personal trading in one of those penny stock issuers”; and became aware of another FINRA inquiry of the allegations underlying those client arbitrations. Despite all this, according to the SEC, FINRA “had no clear process for how to handle red flags of potential market manipulation.”
After Wedbush learned of these red flags, according to the SEC, the firm continued permitting Ms. Delorme to process customer orders and communicate with clients, “including making investment recommendations.” While this was happening, she was still acting as an “accomplice” with a “manipulative trading scheme” operated by Izak Zirk Engelbrecht, who in 2014 was charged by the SEC with violating anti-fraud and registration securities laws, and who pleaded guilty in the Northern District of Ohio to counts of securities fraud, conspiracy to commit securities fraud, and wire fraud. The SEC alleges that as part of Engelbrecht’s scheme, Ms. Delorme “bought certain stocks in her customers’ accounts, or encouraged her customers to buy the stocks, in exchange for undisclosed compensation in the form of shares and cash,” and also that she participated in a manipulative trading strategy that was designed to falsely create the appearance of volume, as well as to “increase or stabilize the price of securities.”
The SEC alleges that Wedbush’s investigations into Ms. Delorme’s conduct were “deficient” and “flawed.” The complaint describes two such investigations, one by the firm’s compliance department and the other by its legal department. in both cases, according to the SEC, the firm failed to “document or otherwise clarify the scope” of the investigation and did not have in place any process for the reporting of the investigations’ documentation or reporting. Due to the lack of reporting or documentation mechanisms, according to the SEC, there was no “coherent response to the red flags” of Ms. Delorme’s conduct. Though she was placed on a one-year heightened supervision plan in March 2014, the SEC states that this was apparently a means of resolving “the ongoing FINRA matter” rather than a response to her misconduct or the red flags; the SEC notes that Wedbush had no documentation discussing who decided upon her discipline, why it was appropriate, or why it had the timing it did. The SEC also notes that though Ms. Delorme was interviewed by the FBI in April 2014 about her role in the penny stock scheme, informed her supervisor about the interview, and her supervisor informed his manager, the firm’s compliance department did not interview her about the FBI or conduct an internal investigation in response to the interview. As a result of these and other considerations, the SEC determined that Wedbush failed to properly supervise Ms. Delorme or take action to stop the pump-and-dump fraud. Ms. Delorme has paid a $50,000 penalty and agreed to a bar from the securities industry to settle fraud charges against her; the charges against Wedbush remain pending.
If you or someone you know has lost money investing with Wedbush Securities, call Fitapelli Kurta at 877-238-4175 for a free consultation. You may be eligible to recoup your losses. Fitapelli Kurta accepts all cases on a contingency basis: we only get paid if and when you collect money. Time to file your claim may be limited, so we encourage you to avoid delay. Call 877-238-4175 now to speak to an attorney for free.