Broker-Dealer Litigation - Greenberg Traurig LLP

including censure, suspension from association in a supervisory capacity, and orders to pay
disgorgement, prejudgment interest, and civil monetary penalties.
In re Gallardo, Release No. 65658, 2011 SEC LEXIS 3848 (Oct. 31, 2011).
The Securities and Exchange Commission instituted public administrative proceedings
against a broker-dealer and its president (“respondents”). In anticipation of the institution of the
proceedings, the respondents submitted an offer of settlement which the SEC accepted. The SEC
alleged the respondents failed to reasonably supervise a registered representative within the
meaning of Section 15(b)(4)(E) of the Securities Exchange Act of 1934. A registered
representative in a New York branch office convinced a group of Bolivian investors to name him
as their registered representative. The registered representative promised the investors that he
would invest their funds in a separate investment company that the registered representative
operated, which would guarantee a 9% to 15% monthly return. In fact, the registered
representative’s investment company was a complete sham, and the registered representative
misappropriated most of the funds by transferring the money into his personal checking account.
The broker-dealer and its president allegedly failed to reasonably supervise the representative,
because they hired him knowing that he had little to no previous supervisory experience and had
never run a branch office before. The president also hired the registered representative knowing
that he never took the examination to become a licensed branch manager. The president failed to
follow up on the series of red flags which would have put him on notice as to suspicious activity
between the registered representative and the Bolivian investors. For example, the president
failed to follow up on e-mails showing that the registered representative was considering a profitsharing
arrangement with a firm customer and may have promised a firm customer exorbitant
returns on investments. The president and the broker-dealer also allegedly failed to develop
reasonable systems to implement written standards and procedures with respect to prohibited
transactions. Pursuant to the terms of the settlement, without admitting or denying the
allegations, the president consented to a bar from association in a supervisor capacity with any
broker, dealer, or investment advisor for three years. He also agreed to pay a fine of $35,000.
The broker-dealer was censured and ordered to pay a fine of $50,000.
In re Clifton, Release No. 443, 2011 SEC LEXIS 4185 (Nov. 29, 2011).
An administrative law judge found that the president of a broker-dealer willfully violated
Section 17(a) of the Securities Act of 1933 and Section 15(b)(6) of the Securities Exchange Act
of 1934. The broker-dealer, on behalf of an oil and gas exploration business, offered limited
partnership interests in an oil and gas drilling project. The president of the broker-dealer was
responsible for supervising sales representatives and, if necessary, taking disciplinary action
against them. He was also the person primarily responsible for providing information updates on
the project to the sales representatives. The president violated the broker-dealer’s written
standards and procedures by failing to review the outgoing written and electronic correspondence
of the sales representatives to the investors. The evidence showed that the sales representatives
provided prospective investors with misleading information. The president also failed to provide
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