Blind Eye
On August 20, the Securities Exchange Commission suspended Eugene Miller from acting as a supervisor for any b/d for 12 months, and fined him $50,000. The suspension and fine were applied for Miller's failure to supervise at Leeb Brokerage Services, a now defunct b/d where he was president. Between April 2005 and April 2007, Leeb sold privately obtained penny stocks to the public on behalf of its customers without any registration statements, according to the SEC's findings.
The SEC alleges that Miller failed to take note of a number of red flags despite the fact that he regularly reviewed his firm's penny stock trading activity, and despite repeated regulatory inquiries about certain customer accounts and penny stocks. Red flags included: One of the customers who engaged in penny stock transactions had a prior pump-and-dump related judgment, many of the customers were also engaged in promoting the penny stocks they were selling, and some of them controlled more than one brokerage account under different corporate names.
In one case, there was an account held by a customer incorporated in Nevis that: was operated by persons in Vancouver; was submitting orders through traders in Costa Rica; was routinely delivering into its account privately obtained shares of penny stocks; and had, from October 2005 to June 2007, wired proceeds totaling over $30 million to a bank in Liechtenstein.
Bad Placement
On August 4, Montana Securities regulators sued Securities America and CEO James Nagengast, among other top executives, for the firm's sale of failed private placements in Medical Capital Holdings (MCHI) to clients. Montana is considering revoking Securities America's license in the state, according to the complaint.
Securities America brokers sold $697 million worth of MCHI notes between 2003 and 2008, 37 percent of all MCHI notes sold nationwide during the period. According to the complaint, Securities America “withheld material information regarding heightened risks” from its brokers and their clients regarding the private placement notes, including the fact that they were not fully secured. The complaint also states that the high-risk investments were not suitable for the unsophisticated Montana investors to whom they were sold.
Among other things, Securities America concealed the following from its brokers and clients, according to the complaint: The firm and its principals used investor funds to purchase lavish goods, including a multimillion dollar, 118-foot yacht, to invest in non-medical projects, including an Internet pornography promotion business, mobile phone and movie projects.