The Securities and Exchange Commission has charged broker-dealer Wedbush Securities Inc. for failing to supervise one of its registered representatives who was allegedly involved in a long-running pump-and-dump scheme targeting retail investors. This is the second SEC action against Wedbush this year and the third since 2014.
The SEC’s investigation found that Timary Delorme received undisclosed benefits for investing her customers in microcap stocks that were the subject of an alleged “pump-and-dump” scheme orchestrated by Izak Zirk Engelbrecht, who was previously charged by the SEC and criminal authorities in separate actions.
The SEC claims that the broker-dealer ignored numerous red flags indicating that Delorme was involved in the scheme, including a customer email outlining Delorme’s involvement and multiple FINRA arbitrations and inquiries regarding her penny stock trading activity. Delorme agreed to settle the fraud charges.
In response to the red flags, Wedbush conducted two investigations into Delorme’s conduct, which the SEC claimed were “flawed and insufficient,” but failed to take appropriate action.
“Brokerage firms play an important role in protecting retail investors from abusive conduct by brokers like Delorme,” said Marc Berger, director of the SEC’s New York regional office. “This case sends a clear message that we will not tolerate broker-dealers that fail to exercise appropriate supervision over employees, as alleged here.”
The SEC’s order instituting administrative proceedings against Wedbush charges that the broker-dealer failed reasonably to supervise Delorme with a view to preventing and detecting her violations.
The matter will be scheduled for a hearing before an administrative law judge, who will hear the case and prepare an initial decision. A separate order finds that Delorme violated the antifraud provisions of the federal securities laws.
Without admitting or denying the findings, Delorme agreed to entry of the order, which requires her to pay a $50,000 penalty, imposes industry and penny stock bars, and orders her to cease and desist from future violations.
Over the last three years, the SEC charged Engelbrecht, 15 other individuals, and several entities in the scheme. Eleven of those charged, including Engelbrecht, have since pleaded or were found guilty in parallel criminal proceedings.