FINRA fines Aegis Capital Nearly $1 Million over Sale of Unregistered Penny Stocks | Cold Spring Advisory Group

FINRA fines Aegis Capital Nearly $1 Million over Sale of Unregistered Penny Stocks

August 4, 2015

The Financial Industry Regulatory Authority (FINRA) announced yesterday a $950,000 fine against New York-based broker-dealer Aegis Capital, Corp., for the improper sale of billions of shares in unregistered penny stocks. The firm was also accused of failure to supervise anti-money laundering procedures for the scheme, which helped seven customers illegally offload five unregistered microcap stocks.

According to a complaint filed against Aegis last year, Aegis liquidated nearly 4 billion shares of penny stocks that were not exempt from mandated SEC requirements from April 2009 to June of 2011. The plot to sell these stocks allegedly netted $24.5 million in profits for the seven customers and $1.1 million in commissions for the firm.

According to FINRA, Aegis supervisors ignored several red flags associated with the selling of these penny stocks during this time. The broker who referred the seven customers in question to Aegis, known only as ML, is barred from the industry for abetting securities fraud. The regulatory authority alleges that despite this, ML was still able to control activity in several of the accounts holding the penny stocks.

In addition, two compliance officers at the time of the sales were fined. Charles D. Smulevitz, now registered with Laidlow & Company, agreed to a suspension from serving as a supervisory principal for 30 days and received a $5,000 fine. Kevin C. McKenna is still with the firm but no longer holds a compliance position. He agreed to a $10,000 fine and a 60-day suspension from a supervisory role.

In a separate action also released on Monday, Aegis President and CEO Robert Eide was suspended for 15 days and fined $15,000 for failing to disclose more than $640,000 in outstanding liens on his uniform application for securities industry registration.

These latest violations are not the first for Aegis, a firm with 415 registered representatives at 20 branch locations nationwide. The broker-dealer has 20 disclosures on its FINRA BrokerCheck report and has a documented history of failing to execute customer orders and failing to implement written supervisory procedures.