Written by The White Law Group• September 19, 2024• 1:53 am• Current Investigations, FINRA SEC Sanctions

Wedbush Securities: Broker Misconduct, Customer Complaints

The White Law Group reviews the regulatory history of Wedbush Securities.

Wedbush Securities, (CRD #877, Los Angeles, CA) headquartered in Los Angeles, CA, is a national financial advisory firm. According to its FINRA Broker Report, the firm reportedly has 206 disclosure events on its broker record including 142 regulatory events, 60 arbitrations and 3 civil events.

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Regulatory actions taken against a broker-dealer may include censures, fines, suspensions and restitution, among others. They can have serious consequences for a broker-dealer’s profile and reputation. The following is a review of FINRA and the SEC’s regulatory actions involving Wedbush Securities.

Wedbush Sanctioned for Unsuitable Investments

September 18, 2024: FINRA sanctioned Wedbush Securities this week with a censure and fine for alleged supervisory failures.

From January 2015 to December 2019, Wedbush Securities allegedly violated FINRA Rules 3110 and 2010 by failing to properly supervise recommendations of variable rate structured products (VRSPs) to 20 customers. VRSPs are complex financial products that carry significant risks, including potential loss of principal and low or zero interest rates over time.

Wedbush representatives reportedly made unsuitable recommendations to 12 customers with low or moderate risk tolerances, leading to losses of over $34,000. Additionally, they allegedly recommended VRSPs to eight customers at concentration levels that were inappropriate, accounting for at least 25% of each customer’s liquid net worth.

While these customers did not experience realized losses, they paid over $43,000 in sales charges. Wedbush’s alleged failure to supervise these recommendations properly resulted in violations of FINRA’s rules. The firm has since implemented improved supervisory controls and procedures regarding structured products. In addition to the censure and the $50,000 fine, the firm was ordered to pay restitution to investors.

Wedbush Securities: More Regulatory Issues

August 2023 – Wedbush Securities was one of eleven firms hit this week with fines for its brokers’ private messaging using texting apps such as WhatsApp for “off channel communications.” According to Investment News on August 11, 2023, of the eleven firms, the SEC singled out Wedbush Securities in its complaint, for “pervasive off-channel communications at all seniority levels of Wedbush’s broker-dealer and investment advisor.” This is not the first time Wedbush Securities has been in trouble for failing to supervise certain types of trades, leading to hefty penalties. The firm agreed to pay $10 million in fines.

November 2022 – FINRA has reportedly censured and fined Wedbush Securities $850,000 for regulatory failures. From January 2013 through December 2018, Wedbush allegedly negligently misrepresented on monthly account statements that it sent to approximately 610 customers that certain corporate and municipal bonds were making interest or principal payments when, in fact, the bonds were in default. Wedbush also purportedly made inaccurate customer account statements and during the same period, allegedly failed to establish and maintain a supervisory system. FINRA Sanctions Wedbush Securities for Regulatory Failures

Distributing Unregistered Shares

December 2021 – Wedbush agreed to pay more than $1.2 million to settle charges with the Securities and Exchange Commission for allegedly unlawfully distributing nearly 100 million unregistered shares of more than 50 different low-priced microcap companies. The SEC noted that the firm also failed to file suspicious activity reports in connection with the transactions in question. Wedbush Securities Settles Charges for Unregistered Microcaps

Disclosure Failures

September 2019 – The Securities and Exchange Commission reportedly settled charges against 17 investment advisers, including Wedbush Securities, for disclosure failures regarding their mutual fund share class selection practices. The firms include 16 advisers that self-reported as part of the SEC’s Share Class Selection Disclosure Initiative and were ordered to pay over $135 million in disgorgement and prejudgment interest to investors. Now, the Commission reportedly issued orders against 16 additional advisers that self-reported as part of the initiative, bringing the total amount ordered to be returned to investors to over $135 million. These firms were not required to pay a civil penalty.

February 2018 – FINRA fined Wedbush Securities $1.5 million for net capital deficiencies and for failing to accurately calculate its customer reserve requirement.

Pump and Dump Scheme

March 2018 – The SEC reportedly called Wedbush Securities Inc. a recidivist or repeat offender after it charged the firm with failure to supervise just one month later, according to a press release. The broker-dealer allegedly ignored numerous red flags, according to the SEC’s March 2018 order, indicating that one of its registered representatives was involved in an alleged long-running pump-and-dump scheme targeting retail investors. Wedbush purportedly failed reasonably to supervise Timary Delorme, who purportedly engaged in manipulative trading activity of penny stocks over multiple years.

The SEC indicated that Wedbush was aware of certain aspects of her alleged activity in 2012 and 2013 but its supervisory policies and implementation systems failed reasonably to guide staff on how to investigate the activity, according to the SEC’s order.

Wedbush Securities: Broker Misconduct and Customer Complaints

There have been several cases of registered representatives employed by Wedbush Securities who were allegedly involved in broker misconduct and fraudulent activities.

June 2023 – FINRA reportedly barred a Wedbush rep located in Napa, California after he resigned while under internal review for “potential sales practice violations.” A Wedbush customer reportedly filed a complaint against the broker last December for allegations of “excessive, unauthorized, and unsuitable trading.” The damage amount requested was $1,000,000 and is still pending, according to his broker report.

January 2019 – The Financial Industry Regulatory Authority (FINRA) reportedly suspended former Wedbush advisor Mark Heiden from associating with any FINRA member for 6 months and fined him $5,000 and ordered him to pay restitution of more than $12,000. FINRA alleged that Heiden engaged in unauthorized trading in the accounts of two elderly customers, purportedly without first obtaining these elderly customers’ authorizations, as required.

According to his FINRA broker report, Heiden was registered with Wedbush Securities in Newport Beach, CA from August 2013 until June 2018. He allegedly has 18 customer complaints filed against him, according to his broker report. Allegations include elder abuse, breach of fiduciary duty, churning, fraud by misrepresentation, and unauthorized trades, among others.

FINRA Award: Wedbush pays $1.4 million for Alleged Elder Abuse, Unauthorized Trades

June 2017 – A FINRA Panel ordered Wedbush Securities to pay $1.4 million in damages and commission disgorgement to a couple who invested in long-term municipal bonds and structured certificates of deposit.

FINRA also ordered Wedbush Securities to pay the CA couple’s former broker almost $60,000 of lawyers’ fees and costs, upholding his claim for indemnification despite finding him and Wedbush liable for unauthorized trading and violation of California’s elder abuse statute. FINRA Hits Wedbush Securities with $1.4 Million for Elder Abuse

FINRA’s Supervision Rule

All broker-dealers have a responsibility to adequately supervise its employees. They must ensure the necessary procedures and systems to detect misconduct. Brokerage firms that fail to monitor the business activities of their employees may be liable for investment losses due to negligent supervision for the misconduct of their employees.

When brokers violate securities laws, such as making unsuitable investments, the brokerage firm they are working with may be liable for investment losses through FINRA Arbitration.

Class Action vs. Individual FINRA Arbitration Lawsuit

You may wonder whether a large class action lawsuit is a better litigation option than an individual FINRA arbitration case. The answer depends on many factors, but typically if the loss sustained is large (say larger than $100,000), an individual arbitration claim is likely a better option. Class actions as a recovery option are more appropriate for grouping large numbers of individuals who have small claims – too small to generally pursue individually.

Free Consultation with a Securities Attorney

The White Law Group is a national securities arbitration, securities fraud, and investor protection law firm with offices in Chicago, Illinois and Seattle, Washington.