Broker-Dealer Litigation - Greenberg Traurig LLP

$30,000 civil fine, disgorgement of $25,200 and prejudgment interest of $2,292; Rankin to pay a
$15,000 civil fine; Hubert to pay a $20,000 civil fine disgorgement of $39,615 and prejudgment
interest of $3,603; and Fimreite to pay disgorgement of $2,644 and prejudgment interest of $240.
The Commission declined to impose a penalty against Fimreite based on his sworn statement of
financial condition.
In re Brouwer, Release No. 65208, 2011 SEC LEXIS 3004 (Aug. 26, 2011).
Q.1.a
The Commission accepted an offer of settlement from Brouwer, a former registered
representative associated with a registered broker-dealer. The Commission alleged that Brouwer
made material misrepresentations and omissions concerning the risks associated with certain
structured notes. In particular, he represented that the securities were safe and failed to disclose
the risk that the notes might convert into the underlying securities at a value less than the
invested principal. The Commission further alleged that Brouwer’s recommendations of the
notes were unsuitable for at least two customers. The Commission barred Brouwer from
association and from participating in any offering of a penny stock, ordered him to cease and
desist from violating the antifraud provisions of the federal securities laws, and ordered him to
pay $33,000 in disgorgement, $6,137 in prejudgment interest, and a $33,000 civil penalty.
b. Unfair/Fraudulent Markups or Commissions
Q.1.b
In re Merrill Lynch, Pierce, Fenner & Smith Inc., Release No. 63760, 2011 SEC LEXIS 280
(Jan. 25, 2011).
The Commission accepted an offer of settlement from Merrill Lynch, Pierce, Fenner &
Smith Incorporated (the “Firm”). The Commission alleged that the Firm’s market making desk
improperly disclosed customer order information to the Firm’s proprietary traders, who then
misused the information to place similar orders. According to the Commission, the Firm
improperly charged institutional and high net worth customers an undisclosed mark-up or markdown,
in addition to a commission equivalent, on certain riskless principal trades for which it
had agreed only to charge a commission equivalent. Additionally, on numerous occasions, the
Firm failed to make records of price guarantees that were part of the terms and conditions of
institutional customer orders. As a result of this conduct, the Commission found that the Firm
violated Section 15(c)(1)(A) of the Securities Exchange Act of 1934 by effecting transactions in
securities by means of manipulative, deceptive or other fraudulent devices or contrivances,
Section 15(g) of the Exchange Act by failing to establish written policies and procedures
designed to prevent the misuse of material, nonpublic information, Section 17(a) of the
Exchange Act and Rule 17a-3(a)(6) thereunder by failing to make records of certain terms and
conditions of customer orders, and failed reasonably to supervise its traders. The Commission
ordered the Firm to cease and desist from committing or causing any violations and any future
violations, censured the Firm and ordered it to pay a $10 million civil penalty.
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