San Diego broker-dealer settles in fraud case
A San Diego-based broker-dealer agreed to pay $1.95 million to settle a case involving unauthorized fraudulent trading by one of its registered representatives in the accounts of two Florida municipalities, the Securities and Exchange Commission announced Friday.
The SEC maintained that First Allied Securities Inc. failed to reasonably supervise its former broker, Harold J. Jaschke, who was charged with fraud last year.
“Supervising registered representatives is a job that must be taken seriously by broker-dealers,” said Rosalind Tyson, director of the SEC’s Los Angeles office. “By failing to establish reasonable systems to prevent Jaschke’s misconduct, First Allied did not fulfill its obligation to reasonably supervise its registered representatives.”
The SEC administrative order that instituted the settlement against First Allied found that between May 2006 and March 2008, Jaschke executed numerous unauthorized transactions, made unsuitable recommendations and churned the accounts of the city of Kissimmee, Fla., and the Tohopekaliga Water Authority.
The SEC found that First Allied failed to reasonably supervise Jaschke because it did not establish reasonable systems to direct follow-up action in response to red flags regarding churning and suitability.
Churning is excessive trading in a customer’s account by a broker taken in the context of a customer’s financial situation and investment objectives.
According to the SEC’s order, First Allied waited nine months before contacting the municipalities through self-described “annual review” letters that, in actuality, did not relate to annual reviews.
The letters failed to alert the customers about the suspicious trading activity in their accounts, the SEC said.
Additionally, the SEC order found that First Allied had no system in place to monitor compliance with its rule prohibiting its brokers from using personal e-mail accounts to conduct business.
That enabled Jaschke to use his personal e-mail account to send and receive business-related e-mails that were neither reviewed nor retained by the firm, according to the SEC.