On April 11, 2018, Los Angeles based stockbrokerage, Wedbush Securities Inc., once again came under regulatory fire. This time, the Financial Industry Regulatory Authority, Inc. (FINRA) fined Wedbush $40,000 for alleged rule violations.
Wedbush already received three regulatory sanctions in 2018 with total penalties of $2,809,000. These penalties add to the more than 70 regulatory sanctions and arbitration awards involving millions in fines and awards levied against Wedbush over the past ten years.
In the current action, FINRA said it fined Wedbush for violating the Securities Exchange Commission’s (SEC’s) Regulation NMS, among other rules. Reg NMS requires brokerages to execute customer trades in a manner that ensures customers receive the best quoted price for a security. FINRA alleged Wedbush failed to reasonably ensure it satisfied Reg NMS regarding customers’ intermarket sweep orders.
In February 2018, FINRA and the SEC announced they sanctioned Wedbush $1.5 million and $1.304 million, respectfully, for violating the SEC’s customer protection and net capital rules, as well as related supervisory and books and records violations. The Chicago Board of Options Exchange also chipped in a $5,000 fine against Wedbush in April 2018 for an alleged Reg NMS violation.
Wedbush faces more potentially severe regulatory sanctions. The SEC recognized Wedbush as a repeat offender, labeling it a “recidivist” broker in its March 27, 2018 press release that announced fresh charges. The SEC now accuses Wedbush of failing to adequately supervise its broker of 40 years, Timary Delorme, who was involved in a penny stock pump-and-dump fraud.
According to the SEC, Wedbush ignored signs Delorme inflated the price of penny stocks for companies controlled by Izak Zirk Engelbrech (a/k/a Zirk De Maison). The SEC said Delorme inflated penny stock prices for companies controlled by Engelbrech by purchasing them in her customers’ accounts or encouraging her customers to purchase them.
The SEC claims that in 2012 and 2013, Wedbush viewed an email outlining Delorme’s role in the fraud, received copies of two customer claims filed in FINRA arbitrations alleging the fraud, and learned of FINRA’s inquiries regarding the customers’ allegations and her trading the penny stocks. The SEC said, in 2013, Wedbush settled the arbitration claims and made Delorme pay half of the settlements because it found her to be culpable for the alleged fraud.
The SEC also said, in 2014, Wedbush became aware the US justice department charged Engelbrecht with fraud and the FBI interviewed Delorme about her role in the penny stock scheme. Engelbrecht has pled guilty in the Norther District of Ohio to counts of securities fraud, conspiracy to commit securities fraud, and wire fraud. In January 2017, he was sentenced to 151 months of prison. Seven other co-conspirators have also pled guilty and received prison sentences.
Delorme was separately charged by the SEC for her role in the fraud (as separately reported by Marquardt Law Office LLC). On March 27, 2018, she settled the SEC’s charges by agreeing to a fine and to the SEC barring her from associating with brokerage firms or participating in penny stock offerings or sales. On March 27, FINRA also barred Delorme from associating with any firms registered with FINRA.
Wedbush disclosed to FINRA that it fired Delorme on March 28, 2018 because she was involved in a manipulative trading scheme and willfully violated securities laws, including the SEC’s anti-fraud laws.
Recovery Options for Losses Caused by a Firm’s Failure to Supervise Fraud
Brokerages, like Wedbush, owe their customers a duty to closely supervise their brokers to ensure they do not violate the SEC’s and security regulators’ rules and laws. Investors have the right to pursue claims to recover their losses caused by firms inadequately supervising their brokers. Additionally, courts and arbitrators may hold firms jointly responsible for their brokers’ misconduct under agency law theories.
If you believe Timary Delorme or another Wedbush broker may have caused you investment losses through fraud or negligence, contact Marquardt Law Office LLC to speak with a securities attorney and receive a free case evaluation.
Marquardt Law Office LLC is a securities law firm located in Chicago, IL that represents clients nationwide who have suffered losses due to misconduct such as fraud and negligence.