Broker-Dealer Litigation - Greenberg Traurig LLP

Q.1.e(iii)
In re Schaefer, Release No. 65278, 2011 SEC LEXIS 3178 (Sep. 7, 2011).
The Commission issued an Order Instituting Proceedings (OIP) and entered a final
judgment by default against Schaefer, formerly the president, a principal, and a registered
representative with a registered broker-dealer. In an earlier proceeding brought by the
Commission in federal court, the court entered a default judgment permanently enjoining
Schaefer from violating the securities registration and antifraud provisions of the federal
securities laws, and from aiding and abetting violations of various other provisions. The
Commission’s complaint alleged that Schaefer sold unregistered securities of his firm’s parent
company to investors and diverted approximately 79% of the offering proceeds to enrich himself
and others. The Commission also alleged that Schaefer knowingly and substantially assisted in
violating numerous regulatory provisions governing broker-dealers by not disclosing in
regulatory filings that another individual controlled the firm, by permitting unregistered
individuals to effect securities transactions, and by not making or keeping required employment
documentation for certain associated persons of the firm. The Commission barred Schaefer
barred from association.
In re Gilford Sec., Inc., Release No. 9264, 2011 SEC LEXIS 3419 (Sept. 30, 2011).
Q.1.e(iii)
The Commission accepted offers of settlement from Gilford, a registered broker-dealer
(the “Firm”), Worthington, Gilford’s CEO and trading desk supervisor, Granahan, Gilford’s
CCO and AML officer, and Kaplan, a sales manager and supervisor of Berger, a former
registered representative of the Firm. In an earlier action in federal district court, Berger pleaded
guilty to conspiracy to commit securities fraud and wire fraud. The Commission’s complaint
against Berger alleged that Berger, together with others, engaged in schemes to pump and dump
the securities of at least eight U.S. microcap stocks, and facilitated unregistered sales of millions
of shares of these stocks, generating proceeds in excess of $33 million. Berger resold shares of
the unregistered securities through at least twenty customer accounts at the Firm. The
Commission alleged that the Firm failed reasonably to supervise Berger, permitted customers to
deliver in and sell millions of shares of stock without registered representatives and officers at
the Firm conducting reasonable inquiry into the source of the stock, failed to fulfill its
obligations under the Bank Secrecy Act with respect to filing Suspicious Activity Reports,
allowed employees to execute customer orders without the requisite trading licenses, failed to
make and keep current either a questionnaire or application for employment for these employees,
and violated Regulation S-P by sharing nonpublic customer information with unauthorized third
parties. The Commission alleged that Worthington and Kaplan aided and abetted some of the
Firm’s violations, and that Granahan aided and abetted the Firm’s Suspicious Activity Report
violation.
The Commission ordered all Respondents to cease and desist from committing or causing
any future violations of the federal securities laws. It further censured the Firm and ordered it to
pay disgorgement of $275,000, prejudgment interest of $77,113, and a $260,000 civil penalty.
The Firm also undertook to retain an independent consultant to review its policies and
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