SEC CHARGES INDIVIDUAL BROKERS WITH FRAUD IN ARS SALES
The SEC filed a complaint in federal court against two individuals for making misleading statements in connection with the sale of auction rate securities. The SEC alleged that the defendants sold auction rate securities backed by government guaranteed student loans to corporate clients looking for a cash alternative to money market funds or repos. However, the SEC charged that the defendants purchased securities backed by various asset classes including CDOs and subprime paper. The SEC alleged that the defendants lied in e-mails to clients about the nature of the securities. The SEC is seeking restitution, disgorgement of commissions, and civil penalties.
OUR TAKE: What is noteworthy is that the SEC has moved beyond prosecuting firms and is now charging individual brokers with fraud in the ARS scandal. This case demonstrates that a registered representative cannot play cat and mouse with his/her firm and then avoid liability for fraud. Each registered representative has an obligation to comply with the securities laws.