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Five Firms Fined $385,000 by FINRA for Sale of Unregistered Securities, Other Violations Relating to Penny Stocks
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Washington, DC — On April 27, 2010, the Financial Industry Regulatory Authority (FINRA) announced that it fined five broker-dealers a total of $385,000 for the illegal sale of more than 8 billion shares of penny stock on behalf of their customers. Most of those illegal sales involved one penny stock company, Universal Express Inc. Together, the five firms sold more than 7.5 billion shares of that company’s unregistered stock, for proceeds of approximately $8.4 million as reported in the FINRA news release.
Further, the firms failed to take appropriate steps to determine whether the securities could be sold without violating federal registration requirements – despite certain red flags indicating that illegal stock distributions might be taking place, including a major enforcement action by the Securities and Exchange Commission (SEC) involving Universal Express’s unregistered stock.
The FINRA article reported that the firms fined are Fagenson & Co., Inc., of New York, which reported earning $44,000 in commissions from the sale of unregistered Universal Express stock and was fined $165,000; RBC Capital Markets Corporation, of New York, which earned $68,000 in commissions and was fined $135,000; Alpine Securities Corporation, of Salt Lake City, which earned $47,000 in commissions and was fined $40,000; Equity Station, Inc., of Boca Raton, which earned $13,575 in commissions and was fined $25,000; and, Olympus Securities, LLC., of Montville, NJ, which earned $5,200 in commissions and was fined $20,000.
”Brokerage firms are the first line of defense when it comes to preventing the illegal distribution of unregistered securities into the public markets,” said James S. Shorris, FINRA Executive Vice President and Executive Director of Enforcement. “The failure to detect and prevent these sales creates serious risks to the unsuspecting customers who purchased these unregistered securities.”
FINRA found that in each instance, the firms’ customers deposited large blocks of thinly traded securities in certificate form and then immediately liquidated those positions. The firm executed these sales despite the fact that the SEC had filed a complaint in early 2004 alleging that Universal Express had issued more than 500 million shares of unregistered stock for distribution to the public and charging Universal’s CEO and others with issuing a series of false press releases and other false and misleading statements to promote the sale of that unregistered stock. In early 2007, a federal court ruling enjoined Universal Express from further violations of the securities laws. Ultimately, Universal Express was ordered to disgorge nearly $12 million in ill gotten gains and interest, as well as nearly $10 million in fines.
The five firms nonetheless executed most of the illegal sales of Universal Express unregistered stock either after the SEC commenced its suit or after it had prevailed in its enforcement action.
In addition, FINRA found that four of the five firms – Fagenson & Co., RBC Capital Markets, Alpine Securities and Olympus Securities – failed to establish, maintain and enforce a reasonable supervisory system designed to prevent the sale of unregistered stock.
In settling these matters, the firms neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
Were you sold unregistered securities from Fagenson & Co., RBC Capital Markets Corp., Alpine Corp., Equity Station, Inc., or Olympus Securities, LLC? Or did your broker or brokerage get you involved with unregistered stock from Universal Express, Inc? Call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC. Representing investors nationwide before FINRA and the NFA.
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