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Screenshot of a breaking news alert e-mail from Q2 2017
The U.S. Securities and Exchange Commission announced charges against Wedbush Securities Inc. for failing to supervise employee Timary Delorme after the broker-dealer ignored numerous red flags indicating that Delorme was involved in a long-running pump-and-dump scheme targeting retail investors. Delorme agreed to settle fraud charges stemming from the same scheme.
This is the second SEC action against Wedbush this year and the third since 2014.
The SEC’s investigation found that Delorme – a registered representative of Wedbush – received undisclosed benefits for investing her customers in microcap stocks that were the subject of a “pump-and-dump” scheme orchestrated by Izak Zirk Engelbrecht, who was previously charged by the Commission and criminal authorities in separate actions. 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. In response to these clear red flags, Wedbush conducted two flawed and insufficient investigations into Delorme’s conduct but failed to take appropriate action.
“Brokerage firms play an important role in protecting retail investors from abusive conduct by brokers like Delorme,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “This case sends a clear message that we will not tolerate broker-dealers that fail to exercise appropriate supervision over employees, as alleged here.”
The SEC’s order instituting administrative proceedings against Wedbush charges that the broker-dealer failed reasonably to supervise Delorme with a view to preventing and detecting her violations. The matter will be scheduled for a hearing before an administrative law judge, who will hear the case and prepare an initial decision. A separate order finds that Delorme violated the antifraud provisions of the federal securities laws. Without admitting or denying the findings, Delorme agreed to entry of the order, which requires her to pay a $50,000 penalty, imposes industry and penny stock bars, and orders her to cease and desist from future violations.
The SEC previously charged Engelbrecht, 15 other individuals, and several entities in a related manipulation scheme. Eleven individuals, including Engelbrecht, pleaded or were found guilty in parallel criminal proceedings.