The Securities and Exchange Commission (SEC) leveled charges against Wedbush Securities for ignoring numerous red flags that one of its employees was involved in a long-running “pump-and-dump” scheme targeting retail investors.
Pump and dump schemes, traditionally done through cold calling, attempt to increase the price of stock through recommendations based on false or misleading information. These schemes have become far more prevalent with the rise in internet dependence.
The employee, Timary Delorme, received undisclosed benefits for investing her customers in microcap stocks that were the subject of a “pump-and-dump” scheme orchestrated by Izak Zirk Engelbrecht. Engelbrecht was previously charged by SEC and criminal authorities.
The SEC said Wedbush ignored multiple signs of Delorme’s fraud, including a customer email outlining Delorme’s involvement in the scheme and multiple FINRA inquiries regarding her penny stock trading activity. Wedbush conducted what the SEC called two flawed and insufficient investigations into Delorme’s conduct, but did not take appropriate action.
“Brokerage firms play an important role in protecting retail investors from abusive conduct by brokers like Delorme,” Marc Berger, director of the SEC’s New York Regional Office, said. “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 Wedbush case will be heard before an administrative law judge, who will then prepare an initial decision.
A separate order found that Delorme violated the antifraud provisions of the federal securities laws. Delorme agreed to the entry of the order, without admitting or denying the findings. She was required to pay a $50,000 penalty.
The SEC’s investigation was conducted by John Enright, Lindsay Moilanen, and Sheldon Pollock. It is being supervised by Lara Mehraban of the New York Regional Office.