Broker-Dealer Litigation - Greenberg Traurig LLP

Matter of Bloomfield, Admin. Proc. File No. 3-13871, SEC Initial Dec. Release No. 416-A, 2011
SEC LEXIS 1457 (April 26, 2011).
Among the issues in this administrative proceeding, tried before ALJ Murray, was
whether respondent Gorgia failed reasonably to supervise certain registered representatives in
connection with the sale of unregistered securities. The ALJ summed up he lengthy and
exhaustive opinion by stating: “this large scale fraud with massive financial losses to members of
the investing public happened because a broker-dealer did not exercise safeguards when
accepting securities from customers where there were abundant red flags.”
Gorgia argued that he was not in the direct supervisory chain, that he did not have the
ability to control the actions of the representatives, and that he made attempts to address
compliance issues and left the firm when his demands and suggestions were not implemented.
The ALJ, however, did not find Gorgia’s arguments applicable, or his testimony credible. She
found that Gorgia was, in fact, a supervisor, having been assigned areas of supervision in the
firm’s written supervisory procedures, served as its Chief Compliance Officers, that he was in
charge of the firm’s supervisory system, and had the ability to fire at least one of the
representatives. The ALJ pointed to numerous red-flags, and indications of clear awareness on
the part of Gorgia, of problematic activities surrounding the firm’s and the representative’s
penny stock business, including information requests from the firm’s clearing broker. The ALJ
concluded that Gorgia failed reasonably to supervise the representatives within the meaning of
Sections 15(b)(4) and 15(b)(6) of the Exchange Act, with a view toward preventing and
detecting violations of Section 5 of the Securities Act.
As a result, Gorgia was barred from association with any broker or dealer and from
participating in any offering of penny stock, required to cease and desist from committing or
causing any violations or any future violations of Section 17(a) of the Exchange Act or Rule 17a-
8 thereunder, and required to pay a civil money penalty of $100,000.
In re Huntleigh Securities Corp., Admin. Proc. File No. 3-14354, SEC Release No. 34-64336,
2011 SEC LEXIS 1439 (April 25, 2011).
The SEC alleged that the firm failed reasonably to supervise a representative who
engaged in “marking the close” trades on behalf of an investment adviser customer. The adviser
sent orders in thinly-traded securities to the firm, directing that the orders be executed in the final
minutes of the last trading day of the month. The SEC alleged that the purpose of doing so was
to artificially inflate the closing prices of the securities. A firm’s supervisory failures centered
on its failure to establish procedures or a system for implementing existing procedures
reasonably designed to prevent and detect the trader’s violations of the securities laws, which
were separately charged as violations of Section 10(b) of the Exchange Act and Rule 10b-5
thereunder.
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