Broker-Dealer Litigation - Greenberg Traurig LLP

As a result of this conduct, the president violated multiple securities laws prohibiting fraudulent
conduct in the offer and sale of securities. The SEC ordered that a hearing take place within 30–
60 days.
In re Pagliarini, Release No. 63964, 2011 SEC LEXIS 682 (Feb. 24, 2011).
The Securities and Exchange Commission instituted public administrative cease-anddesist
proceedings against the compliance officer of a broker-dealer. The compliance officer
submitted an offer of settlement in anticipation of the institution of the proceedings, which the
SEC agreed to accept. The SEC alleged that the compliance officer failed to reasonably
supervise a registered representative who helped manipulate the prices of stocks of several
microcap issuers. The compliance officer failed to comply with the firm’s procedures for
following up on suspicious transactions, such as those where the customer engages in
transactions that lacked business sense or exhibited a lack of concern regarding risks,
commissions, or other transaction costs. In addition, the compliance officer failed to file
suspicious activity reports (“SARs”) on behalf of the broker-dealer in response to some of the
questionable transactions. The compliance officer knew of her obligation to assist the brokerdealer
in fulfilling its requirements to file SARs and knew or should have known that significant
suspicious activity was not being reported by the broker-dealer as a result of her actions.
Without admitting or denying the allegations, the compliance officer consented to cease and
desist from committing or causing any violations of Section 17(a) of the Exchange Act, a
suspension from acting in a supervisory capacity with any broker or dealer for 12 months and a
fine in the amount of $20,000.
In re Divine Capital Mkts., LLC, Release No. 63980, 2011 SEC LEXIS 722 (Feb. 25, 2011).
The Securities and Exchange Commission instituted public administrative and cease and
desist proceedings against a broker-dealer, its chief executive officer, and one of its registered
representatives. After an investigation, the Division of Enforcement alleged that the chief
executive officer was responsible for the supervision of the broker-dealer’s equities, institutional,
and retail sales. The chief executive officer failed to reasonably supervise the representative by
ignoring red flags that a large volume of his sales constituted an unregistered distribution. The
broker-dealer’s supervisory policies were inadequate to provide guidance to supervisors
regarding the appropriate inquiry to determine whether the public sale of shares acquired from an
issuer was prohibited by Section 5 of the Securities Act of 1933. If the chief executive officer
and the broker-dealer had developed reasonable policies and procedures requiring appropriate
diligence in these situations, the firm likely would have prevented and detected the registered
representative’s violations of the Securities Act. The SEC ordered that a hearing take place
within 30–60 days before an administrative law judge.
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