Broker-Dealer Litigation - Greenberg Traurig LLP

censure, a civil money penalty of $260,000, disgorgement of over $3.8 million, including
prejudgment interest, and agreed to comply with an undertaking to review its policies,
procedures and systems regarding the detection and prevention of interpositioning violations, to
submit a report to the SEC regarding the review and conclusions and changes made as a result of
the review, and to certify that it has established procedures, and a system for applying the
procedures, which are reasonably expected to prevent and detect, insofar as practicable, the
violations described in the SEC’s order. The firm also agreed to provide cooperation in
connection with the SEC’s ongoing investigation and/or litigation relating to the underlying
conduct. The COO consented to a three-month suspension from association with a broker,
dealer, investment advisor, municipal securities dealer, municipal adviser, transfer agent, or
nationally recognized statistical rating organization.
Matter of Clifton, Admin. Proc. File No. 3-14266, SEC Init. Dec. Release No. 443, 2011 SEC
LEXIS 4185 (Nov. 29, 2011).
The SEC alleged that Clifton, the president and principal of MPG Financial, a registered
broker-dealer, made material misrepresentations and omissions relating to an oil-and-gas well
project while he possessed material and materially adverse information pertinent to potential
investors. The SEC also alleged that Clifton failed to implement day-to-day supervision over
MPG Financial sales representatives and sales practices, that he failed to draft and approve
written supervisory procedures, and otherwise failed to supervise the sales activity.
After a hearing, ALJ Mahony found that MPG Financial’s written supervisory procedures
(“WSPs”) clearly designated Clifton as the designated supervisor of the salesmen and gave him
responsibility for reviewing and approving written and electronic correspondence drafted by
them. Clifton contended, however, that despite the WSPs, he delegated the task of reviewing
electronic correspondence to the firm’s chief compliance officer (“CCO”). The CCO however,
testified that the responsibility for correspondence review was primarily Clifton’s and in any
event he was a part-time employee charged with numerous other compliance responsibilities.
Moreover, the CCO pointed out that his supervisory duties were limited to “associated persons
not involved in sales,” and had agreed with Clifton that he would only conduct keyword search
reviews of electronic communications, not a review of individual e-mails. The ALJ also found
Clifton did not implement any formal tracking system or procedure for documenting the
correspondence review process, noting that both Clifton and the CCO testified that there were
“no formal policies or procedures in place to ensure that electronic communications were being
regularly reviewed.” The ALJ found that Clifton failed to conduct regular and systematic
reviews of e-mail correspondence sent to investors or prospective investors, and concluded that
Clifton violated Section 15(b) of the Exchange Act by failing reasonably supervise the sales
representatives. The ALJ rejected Clifton’s attempt to establish an affirmative defense based on
compliance with the firm’s written supervisory procedures because he concluded that he did not
fulfill the duties charged to him thereunder.
P.1
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