Company Settles SEC Charges for Almost $850,000
Whenever there is an economic financial crisis it seems that more financial industry regulations are implemented or ones that are in effect tend to become more stringent. Yet there are many detractors in the field of investing that believe that it is an industry that is already far too heavily regulated. Often the argument is that business could flourish more readily with less oversight. The problem with this type of thinking is that such a scenario would allow for many more dubious actions within the financial industry than already exist.
One safeguard that regulatory agencies implement in effort to prevent questionable activities is by requiring that any investment firm that transacts business within the United States must be registered with the Securities and Exchange Commission. This registration requires companies that offer securities for public sale to reveal financial and other pertinent information about the company. This is to ensure that investors can make informed decisions about the suitability of the company or companies with which they place their investments. This SEC requirement also mandates that even companies that are appropriately registered cannot facilitate securities transactions for any investment firm which is not properly registered.
This issue is the subject of a recent SEC investigation and settlement agreement. A SEC order filed earlier this month states that from May 2009 until February 2010, Rafferty Capital Markets, a registered broker-dealer firm based in New York, illegally aided a non-registered company in transacting approximately $4 million in illicit trades. Rafferty assisted the undisclosed company by agreeing to allow the unregistered company to use the Rafferty name and systems as the broker/dealer on approximately 100 securities trades. Even though Rafferty held the appropriate licensing and handled the trades, the business end of the transactions was governed by the unregistered firm.
Although five of the firm’s staff members were registered representatives of Rafferty, they worked from offices located at the unregistered company which exerted exclusive control over trading decisions and what fees these staffers would receive. Additionally, Rafferty did not maintain communications with its representatives while they were operating from the unregistered company’s offices nor did they engage in appropriate oversight of the company’s record-keeping. As a result, one of their representatives hid two trades which resulted in record-keeping inaccuracies. Although Rafferty exercised no influence over these matters, they did garner 15% of the monies obtained from these trades as commissions in exchange for allowing the unregistered company to use their systems to execute the trades.
“Rafferty Capital Markets lent out its systems to a firm that tried to sidestep the broker-dealer registration provisions,” said Andrew M. Calamari, director of the SEC’s New York Regional Office. “These provisions require those involved in trading securities to adhere to the proper regulatory framework, and registrants like Rafferty must face the consequences if they fail to think carefully and help unregistered firms avoid the rules.”
The SEC’s order determined that Rafferty intentionally breached several sections of the Securities and Exchange Act, and also intentionally abetted the unregistered firm to do so, as well. Rafferty did not concede any guilt nor did they refute the charges, but they did agree to surrender the illegally obtained profits of $637,615 that were gained from these transactions. They also agreed to payment of interest in the amount of $82,011 and a financial penalty of $130,000. These amends totaled almost $850,000. The SEC investigation is still underway.
Blum Law Group represents clients who have been victimized by brokers or investment firms. If you feel that you have suffered financial losses due to the actions of Rafferty Capital Markets, please call us at the Blum Law Group for a free consultation at 1-877-STOCK-LAW.
(Sources: SEC press release; SEC complaint; Bloomberg Businessweek; Reuters; RCM website; Rafferty Holdings website)