Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Friday, March 5, 2010

SEC Charges Broker-Dealer with Failing to Supervise Broker Who Defrauded Two Florida Municipalities

The SEC charged First Allied Securities, Inc., a San Diego-based broker-dealer, with failing to reasonably supervise one of its registered representatives who engaged in unauthorized fraudulent trading in the accounts of two Florida municipalities.  First Allied Securities, Inc., has agreed to settle the SEC’s findings by paying $1.95 million. The SEC charged the firm’s former broker, Harold H. Jaschke, with fraud last year.

The SEC found that between May 2006 and March 2008, Jaschke executed numerous unauthorized transactions, made unsuitable recommendations, and churned the accounts of the City of Kissimmee, Fla., and the Tohopekaliga Water Authority. The SEC finds that First Allied failed reasonably to supervise Jaschke because it did not establish reasonable systems to direct follow-up action in response to red flags regarding churning and suitability.

According to the SEC’s order, First Allied waited nine months before contacting the municipalities through self-described “annual review” letters that, in actuality, did not relate to annual reviews. The letters failed to alert them about the suspicious trading activity occurring in their accounts. Additionally, the order finds that First Allied had no system in place to monitor compliance with its rule prohibiting its brokers from using personal e-mail accounts to conduct business. This enabled Jaschke to use his personal e-mail account to send and receive business-related e-mails that were neither reviewed nor retained by the firm. The SEC’s order finds that First Allied failed to retain certain business-related e-mails sent to and from its employees, as required under law.

In addition to requiring payment of $1.95 million in disgorgement, prejudgment interest and monetary penalties, the SEC’s order censures First Allied and requires the firm to cease and desist from committing or causing any future violations of certain books and records provisions. First Allied also agreed to certain undertakings, including the hiring of an independent consultant to review its policies and procedures as well as its system for implementing its policies and procedures. First Allied consented to the issuance of the order without admitting or denying the SEC’s findings.

http://lawprofessors.typepad.com/securities/2010/03/sec-charges-brokerdealer-with-failing-to-supervise-broker-who-defrauded-two-florida-municipalities.html

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