SEC Labels Wedbush “Recidivist” B/D in New Supervisory Action
In its second action this year against Wedbush Securities, the Securities and Exchange Commission on Tuesday filed administrative proceedings against the firm for failing to reasonably supervise a broker charged with participating in a “long-running pump-and-dump scheme targeting retail investors.”
Timary Delorme, the broker who has been employed by Wedbush for 36 years, agreed to settle fraud charges stemming from the same scheme and to pay a $50,000 penalty, the SEC said in a news release.
According to the SEC’s order instituting administrative proceedings against Wedbush, the firm ignored multiple signs of Delorme’s fraud, including a customer email outlining her involvement in the scheme and multiple Financial Industry Regulatory Authority arbitrations and inquiries regarding her penny stock trading activity.
“Wedbush conducted two flawed and insufficient investigations into Delorme’s conduct but failed to take appropriate action,” the SEC said in a news release that was headlined “SEC Charges Recidivist Broker-Dealer in Employee’s Long-Running Pump-and-Dump Fraud.”
A spokeswoman for Wedbush declined to comment, and a lawyer for Delorme did not respond to a request for comment.
Delorme received undisclosed benefits for investing her customers in microcap stocks that were the subject of the scheme orchestrated by Izak Zirk Engelbrecht, who was previously charged by the SEC and criminal authorities in separate actions, the federal regulator said.
Wedbush was fined $2.5 million by the SEC and Finra in February and ordered to disgorge almost $300,000 over allegation of net capital and customer-protection violations. After five settlements in 2017 totaling more than $600,000, Wedbush negotiated arrangements to pay its February fine in installments.
The firm’s octogenarian founder, Ed Wedbush, also is fighting a 2015 enforcement finding from Finra calling for a $50,000 fine and a 31-day suspension for supervisory reporting violations. Both a Finra appeals body and the SEC have upheld the self-regulator’s enforcement decision, but Wedbush has appealed further to the U.S. Court of Appeals Ninth Circuit in San Francisco.
Separately, the Trump administration’s Department of Labor has sued Ed Wedbush, his son Gary and the company for fee- and commission-related fiduciary violations in administering two company retirement plans. In October a federal court denied the Wedbush defendants’ motion to dismiss the case.
The new case against Wedbush will be heard by an administrative law judge, who will prepare an initial decision, the SEC said.