Broker-Dealer Litigation - Greenberg Traurig LLP

or nationally-recognized statistical rating organization for a period of four months. He was also
ordered to pay a fine in the amount of $25,000.
In re Gautney, Release No. 65124, 2011 SEC LEXIS 2841 (Aug. 12, 2011).
The Securities and Exchange Commission agreed to settle proceedings, brought pursuant
to Section 15(b)(6) of the Securities Exchange Act of 1934, against R.A.B., a branch manager
(“respondent”) of a broker-dealer. The SEC alleged that the respondent failed to supervise two
registered representatives under his supervision who were allegedly engaged in “churning” or the
excessive buying and selling of securities in a customer’s account for the purpose of generating
commissions and without regard to the customer’s investment objectives. The level of trading
activity in the accounts of the two customers was highly indicative of potential churning. The
turnover ratios in these accounts were far in excess of the standard turnover ratio and warranted
immediate attention and review by a supervisor. Pursuant to the broker-dealer’s written
supervisory procedures, the respondent was required to send active account letters to all
customers with accounts that exceeded a certain turnover ratio, but he was unable to provide
proof that he followed this procedure. The respondent did not keep a log or otherwise track
whether the letters were returned. The respondent failed to take any steps to modify his practice
in face of repeated red flags of excessive trading in the customer accounts. Moreover, one of the
registered representatives was on heightened supervision due to his prior disciplinary history;
thus, the respondent was required to follow the firm’s heightened supervisory procedures for that
registered representative, such as reviewing all of the incoming and outgoing correspondence,
reviewing all of the trade tickets, and checking the registered representative’s orders for
suitability. It was not clear if the respondent actually performed these extra procedures. Had he
done so, additional red flags of the representative’s churning would have been apparent. Without
admitting or denying the allegations, the respondent consented to pay disgorgement of $5,959.00
and prejudgment interest of $901.40. He also agreed to a bar from participating in any offering
of a penny stock and from association in any capacity with any broker, dealer, investment
advisor, municipal securities dealer, municipal advisor, transfer agent, or nationally-recognized
statistical rating organization.
In re Gautney, Release No. 65151, 2011 SEC LEXIS 2944 (Aug. 17, 2011).
The Securities and Exchange Commission agreed to settle administrative proceedings
that were brought pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934 against
E.S.B., a branch manager of a broker-dealer. The branch manager was responsible for
supervising a registered representative who engaged in churning and selling of securities in
customers’ accounts. The high levels of trading within the registered representative’s customer
accounts was repeatedly brought to the branch manager’s attention. The branch manager sent
out active account letters to the customers in response to the quarterly compliance reports.
However, he conceded that sometimes the letters were returned with missing information. The
branch manager expected the letter to be returned only if the customer had a problem with the
account. If the letters were not returned or were missing information, his practice was not to
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