NASD Says No to Sharing
In the “first case of its kind,” according to an NASD release, Securities America has been charged with funneling directed brokerage payments to a former broker with the firm, Michael Bullock, and misleading union retirement plan clients in the process.
Securities America allegedly shared $280,000 in directed brokerage payments with Bullock and a mutual fund company. According to NASD, the firm also failed to adequately supervise Bullock's communications with his union retirement plan clients.
For these violations, Securities America was fined $375,000.
Bullock was separately charged for receiving and failing to disclose the directed brokerage payments, while simultaneously recommending the company's funds to clients. “NASD will vigorously challenge all conduct that impermissibly compromises a broker's objectivity, especially when retirement money is at stake,” says James Shorris, NASD Head of Enforcement.
In the past, firms have been penalized for failure to disclose “shelf space” agreements with fund firms that paid them directed brokerage, but in this case the fund company directed brokerage specifically for the benefit of one broker — a first. In settling the matter, Securities America neither admitted nor denied the charges.
The SEC issued a complaint regarding the activities of C. Wesley Rhodes Jr. Mr. Rhodes, and “the companies he controlled,” raised millions from individual investors for stock and bond investments. Rhodes assured investors in July 2006 that their portfolios had an aggregate value of $40 million. But Rhodes was using the money to buy cars, boats and sports memorabilia instead. The SEC barred Rhodes from association with any investment advisor. In consenting to the SEC order, Rhodes neither admitted nor denied the findings.
The SEC filed a complaint in July against CEP Holdings (www.colonendparenthesis.net). The SEC alleges that CEP and its owners and operators, Trevor Reed and Clayton Kimbrell, fraudulently sold $12 million worth of securities in unregistered transactions to 5,000 investors, promising daily returns of 2 percent.
On their website, the men solicited investors to purchase memberships with CEP with a minimum investment of $20. Assuring investors their money would go into safe “brick and mortar” type businesses, the two allegedly invested most of the money in high-risk, online schemes. What's more, they neglected to disclose to investors that they had no records of these investments — and no financial records whatsoever for CEP. The SEC subsequently froze the assets of the defendants.