The Securities and Exchange Commission fined Wedbush Securities of Los Angeles $8.1 million, including disgorgement, interest, and civil penalties, as part of a crackdown of the firm's improper securities lending practices involving American Depositary Receipts (ADRs), and just the latest penalty in a laundry list of alleged wrongdoing at the Southern California firm.
In its cease-and-desist order (Admin File #3-19205), SEC investigators wrote that Wedbush obtained pre-released ADRs from depositaries and loaned them to counterparties without taking "reasonable steps to determine whether the requisite number of ordinary shares was owned or custodied by Wedbush or its counterparties."
In other words, the regulator held that Wedbush failed to establish how ADR securities were backed: "the result of this conduct was the issuance of ADRs that in many instances were not backed by ordinary shares as required by the Deposit Agreements."
The SEC also charged Wedbush with failing to establish policies and procedures relative to pre-release transactions, and with failing to have supervisory policies that would provide effective oversight of associated persons.
Finally, the SEC found that Wedbush failed to reasonably supervise its associates.
Wedbush responded to the SEC's findings by writing that the firm has taken a new direction toward compliance: "This is one of several legacy regulatory matters that our leadership team has sought to resolve so that we can continue to focus on serving our clients to the best of our ability."
The legacy regulatory matters include a March 2019 SEC penalty of $250,000 against Wedbush for failing to supervise Los Angeles-area broker Timary Delorme, whose 40-year Wedbush career came to a dramatic close in 2018 after Wedbush terminated her for her involvement in a manipulative trading scheme, and multiple customer disputes alleged that Delorme breached her fiduciary duty through fraud by misrepresentation and omission.
Wedbush's regulatory legacy also includes a, 2018 FINRA fined of $1.5 million for supervisory failures and violating the SEC rules pertaining to customer protection and net capital. The findings charged that Wedbush repeatedly violated the rule and failed to take required deductions when valuing CDs, resulting in net capital deficiencies of up to $59.4 million, and whose related misconduct caused the firm to underfund its reserve 183 times to the tune of up to $450 million.
Wedbush's legacy with its clients also includes a handful of customer complaints from 2015-19 that alleged former Wedbush Securities (Solana Beach) and Hilltop Securities (Del Mar/San Diego, CA) broker Mark Fredrick Augusta engaged in elder financial abuse, as well as fraud, unauthorized transactions, and unsuitable recommendations, while, in January 2019, FINRA charged stockbroker William Mark Heiden of Wedbush's Newport Beach office with unauthorized trades in the accounts of elderly Wedbush Securities clients, in addition to the already-existing 14 customer disputes and settlements in Heiden's file.
And Wedbush's legacy also includes a 2016 joint censure-and-fine issued by FINRA and NASDAQ against Wedbush for $675,000, alleging supervisory failures in its leveraged exchange-traded funds (ETFs) business preceded a series of failures at Wedbush to deliver multiple ETFs to clients.
If you have invested with a Wedbush Securities broker or financial adviser whose unsupervised misconduct included improper securities lending practices through ADRs or other illicit activity from misrepresentation and unsuitable recommendations to fraud and elder financial abuse has proven harmful to your investments or interests, please call our experienced FINRA arbitration attorneys at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.