BD PRIMARILY LIABLE FOR REP’S VIOLATIONS
An SEC Administrative Law Judge has ruled that a broker-dealer is primarily liable for securities laws violations caused by a registered representative if the Rep “was acting within the scope of his representative status” whether or not such Rep was an employee or independent contractor. In the case, the Rep was charged with destroying electronic communications following SEC requests for information. The ALJ concluded that the Rep acted within the scope of his employment because the records related to customer communications. Also, as a branch manager, the Rep had an obligation to properly respond to the SEC requests.
OUR TAKE: We have often noted that the SEC (and FINRA) will generally not accept the “rogue broker” defense. Here, the SEC held the BD primarily liable rather than merely responsible for aiding and abetting.