Broker-Dealer Litigation - Greenberg Traurig LLP

prejudgment interest. The payment was waived, however, and a civil money penalty forgone,
however, due to Bellia’s demonstrated inability to pay.
Matter of Divine Capital Markets LLC, Admin. Proc. File No. 3-14274, SEC Release No. 34-
64998, 2011 SEC LEXIS 2609 (Aug. 1, 2011).
Respondent, Divine Capital Markets, LLC, a broker-dealer, and respondent Hughes, the
firm’s CEO and principal responsible for supervision of equities, institutional and retail sales,
were charged with selling unregistered securities and failing reasonably to supervise a
representatives involved in selling such securities, respectively, in connection with a particular
securities offering. Specifically, the representative and Hughes knew that customers had
acquired the shares directly from the issuer, but neither the representative nor Hughes conducted
adequate due diligence to determine if the shares were registered. The SEC noted that Hughes
was responsible for reviewing the firm’s trade tickets to look for, among other things, “sizable
positions in a single security,” and for a period of time served as the firm’s Chief Compliance
Officer.
The SEC alleged that Hughes ignored red flags, in that she received notice that the
customer had received shares in certificate form and was planning on selling them. Thereafter,
the size of the trading also constituted a red flag, with the customer selling 45 million of the first
65 million-share certificate on the first day, with another certificate planned for deposit the next
day. When she inquired about the transactions with the representative, and asked for the stock
purchase agreement by which the shares were acquired directly from the issuer, she received a
copy of the agreement, but took no steps to determine whether the shares were registered.
The SEC also charged Hughes with failure to supervise based on the inadequacy of the
firm’s supervisory policies and procedures, which she was responsible for developing and
maintaining. The policies did not provide adequate guidance to supervisors and did not address
the issue of unregistered distributions through statutory underwriters, or more specifically,
situations in which certificates without restrictive legends were acquired by a customer from an
issuer with a view to distribution, as was present in the instant case.
For its underlying violations of Sections 5(a) and 5(c), and apparently not as a sanction
for failure to supervise (while the SEC’s order recites the firm’s supervisory failures, its violation
section neglects to list failure to supervise among the charged violations against the firm), the
firm consented to a censure, a cease and desist order from committing or causing violations of
Sections 5(a) or 5(c), a penny stock bar, and payment of disgorgement of $33,762 and
prejudgment interest of $ 6,921 and a civil money penalty of $60,000.
In resolution of her failure to supervise charges, Hughes consented to a four-month
suspension from association in a supervisory capacity with any broker, dealer, investment
adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized
statistical rating organization, and payment of a civil money penalty of $25,000.
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