Wedbush Admits It Failed to Supervise Clients’ TradesSam Mamudi
Wedbush Securities Inc. agreed to pay $2.44 million to settle U.S. regulatory claims that it failed to vet clients who broke stock market rules.
Wedbush admitted that it didn’t have adequate risk controls before it allowed customers access to the market, the Securities and Exchange Commission said in a statement today. The accord resolves the SEC’s June administrative claims against the Los Angeles-based firm.
Jeffrey Bell, a former Wedbush executive, and Christina Fillhart, who still works at the company, agreed to pay a combined $85,000 for their alleged role in the matter, the SEC said. In settling the claims, Bell and Fillhart didn’t admit to wrongdoing.
“Broker-dealers who enjoy the benefits of being registered must honor the responsibilities that come with that status, and we will continue to hold responsible those who provide market access without implementing proper risk controls,” Andrew Ceresney, director of the SEC Enforcement Division, said in a statement.
Steve Young, an attorney for Bell, said his client declined to comment. A phone call to an attorney for Fillhart wasn’t immediately returned.
Wedbush said in a statement that it is “satisfied” with the resolution and has always taken seriously its obligations under the securities laws. The company said it terminated the accounts at issue more than a year ago and that the trading activity didn’t result in harm or losses to other market participants or to Wedbush.
Wedbush, from July 2011 until at least January 2013, allowed dozens of firms with thousands of traders to place transactions “that did not flow through any Wedbush systems before reaching exchanges and other trading venues in the U.S.,” the SEC said in the administrative order.
The company didn’t have sufficient controls in place to prevent naked short sales, wash trades, money laundering and layering, in which bogus orders are quickly placed and canceled to manipulate prices, according to the SEC.
In a wash trade, one trader handles both sides of a single transaction, simultaneously buying and selling a stock with the possible goal of driving prices in a certain direction. Naked short sales involve failing to first borrow shares before selling a stock short.