Broker-Dealer Litigation - Greenberg Traurig LLP

In re Torrey Pines Sec. Inc., Release Nos. 64317 & 3188, 2011 SEC LEXIS 1394 (Apr. 20,
2011).
Following the institution of administrative proceedings against a broker-dealer, the
broker-dealer submitted an offer of settlement which the Securities and Exchange Commission
accepted. The SEC alleged that the broker-dealer failed to reasonably supervise a registered
representative and part-owner of the firm. The representative acted as an unregistered brokerdealer
in violation of Section 15(a) of the Securities Exchange Act of 1934, as he conducted an
unregistered, private offering outside the scope of his employment with the broker-dealer. The
broker-dealer failed to establish reasonable policies and procedures to assign responsibility for
supervising the representative. No one oversaw the daily activities of the office in which the
representative worked. No one reviewed the representative’s daily correspondence or telephone
calls, other than in cursory annual audits. Although the broker-dealer had a policy prohibiting
the selling of securities outside of the firm, the firm failed to develop systems for supervisors and
the compliance department to monitor for adherence to these provisions. If the broker-dealer had
established systems providing for better monitoring, a supervisor or the compliance officer
would reasonably have been expected to detect the representative’s outside business activities. A
number of suspicious events concerning the representative’s outside business activities came to
the attention of supervisors and compliance staff, but the broker-dealer did not have procedures
that required supervisors or the compliance officer to follow up on these events. Without
admitting or denying the allegations, the broker-dealer consented to a censure. No monetary
penalty was imposed.
In re Huntleigh Sec. Corp., Release No. 64336, 2011 SEC LEXIS 1439 (Apr. 25, 2011)
The Securities and Exchange Commission brought public administrative and cease-anddesist
proceedings against a broker-dealer and the broker-dealer’s head of institutional trading
(collectively, “respondents”). In anticipation of the institution of those proceedings, the
respondents submitted an offer of settlement, which the SEC accepted. The SEC alleged that the
respondents failed to reasonably supervise a registered representative who was engaged in
“marking the close,” which involves placing orders at or near the close of the market to
artificially effect the closing price of a stock. The respondents failed to establish procedures or
to have a system to implement existing policies and procedures reasonably designed to prevent
and detect the representative’s marking the close trading. The broker-dealer’s procedures did not
call for certain daily trading exception reports to be directed to compliance personnel. While its
written procedures directed daily review of trade tickets, such daily review was suspended. Had
there been daily review of trading exception reports and of trade tickets, the representative’s
illegal trading could have been prevented and detected. Without admitting or denying the
allegations, the broker-dealer consented to a censure and undertaking to adopt and implement
procedures requiring daily review of trade execution blotters and exception reports by
compliance personnel. The head of institutional trading consented to a bar from association with
any broker or dealer or participating in the offering of any penny stock for one year. He also
agreed to a fine of $15,000.
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