Broker-Dealer Allowed Adviser to Set Commissions
A broker-dealer agreed to pay over $900,000 to settle charges that it allowed an unlicensed adviser to conduct unsupervised equity trading through its facilities. The BD’s CEO was also fined and barred from serving in a supervisory capacity. The SEC asserts that the adviser’s principal’s wife collected 50% of the commissions and that the remaining revenues were used to pay accrued expenses owed by the adviser to the broker-dealer. The SEC maintains that the adviser charged clients almost 4 times the minimum ticket charge, thereby unjustly enriching himself, his firm, and the broker-dealer. The adviser never obtained his Series 7 license, which would be required to engage in the type of equity trading alleged. The SEC previously took action against the adviser. See http://blog2.cipperman.com/2013/04/adviser-failed-to-disclose-reasons-for-recommending-bd/.
OUR TAKE: All parties in the chain of alleged wrongdoing will have accountability. Although the broker did not deal directly with the harmed clients, it ultimately benefitted from the bad actions of its client and will now disgorge that unjust enrichment. Additionally, the supervisory bar significantly limits the BD CEO’s ability to continue to run his firm.