The Financial Industry Regulatory Authority (“FINRA”) announced that is has settled enforcement actions with Aegis Capital Corp. (“Aegis”), two of its chief compliance officers, and its CEO. Aegis, based in New York City, has been a member of FINRA, or its predecessor the National Association of Securities Dealers, since 1984. It is a full service retail and institutional broker-dealer founded by its current CEO and Chairman, Robert Eide. The settlements resolve actions against Aegis and its compliance officers for allegedly selling unregistered penny stocks, also known as pink sheet and OTC stocks, and related supervisory failures. In addition, the CEO of Aegis, Robert Eide, settled a separate enforcement action for his alleged failure to disclose three tax liens on his U-4.
According to FINRA, between April 2009 and June 2011, Aegis effectuated the sale of almost 3.9 billion shares of five penny stocks on behalf of seven customers. FINRA alleged that the shares were neither registered with the SEC, nor exempt from registration. The improper penny stock trades generated over $24.5 million in proceeds and more than $1.1 million in commissions.
The FINRA Order Accepting Offer of Settlement asserted that Aegis failed to detect and investigate red flags of suspicious transactions, to wit: multiple deposits of billions of shares of unregistered penny stocks in multiple accounts which were controlled and/or referred by a person who had previously been barred from the securities industry; the sale of the shares shortly after their deposit in the accounts; and the transfer out of the sale proceeds quickly following the liquidation of the shares.
FINRA alleged that Aegis violated FINRA Rule 2010 by selling shares of the unregistered penny stocks in transactions that were not exempt from registration. In addition, FINRA claimed that Aegis and its compliance officers failed to establish, maintain, and enforce a supervisory system reasonably designed to achieve compliance with securities rules and laws. Aegis agreed to pay $950,000 to settle the allegations.
With respect to the enforcement action against the founder and CEO of Aegis, Robert Eide, FINRA alleged that he knowingly failed to disclose three tax liens in effect between 2009 and 2011 totaling over $640,000. Mr. Eide agreed to a 15-day suspension and $15,000 fine without admitting or denying the allegations.