SEC Charges First Allied Securities with Failing to Supervise
March 5, 2010
The Securities and Exchange Commission Friday charged First Allied Securities with failing to reasonably supervise a representative who engaged in “unauthorized fraudulent trading in the accounts of two Florida municipalities.”
First Allied, based in San Diego, has agreed to settle the SEC’s findings by paying $1.95 million. The SEC charged the firm’s former broker, Harold H. Jaschke, with fraud last year.
“Supervising registered representatives is a job that must be taken seriously by broker-dealers,” said Rosalind Tyson, Director of the SEC’s Los Angeles Office, in a statement. “By failing to establish reasonable systems to prevent Jaschke’s misconduct, First Allied did not fulfill its obligation to reasonably supervise its registered representatives.”
According to the SEC, between May 2006 and March 2008, Jaschke “executed numerous unauthorized transactions, made unsuitable recommendations, and churned the accounts of the City of Kissimmee, Fla., and the Tohopekaliga Water Authority.”
The SEC finds that First Allied failed reasonably to supervise Jaschke because it did not establish reasonable systems to direct follow-up action in response to red flags regarding churning and suitability.
According to the SEC’s order, First Allied waited nine months before contacting the municipalities through self-described “annual review” letters that, in actuality, did not relate to annual reviews.
The letters failed to alert them about the suspicious trading activity occurring in their accounts. Additionally, the order finds that First Allied had no system in place to monitor compliance with its rule prohibiting its brokers from using personal e-mail accounts to conduct business. This enabled Jaschke to use his personal e-mail account to send and receive business-related e-mails that were neither reviewed nor retained by the firm.
The SEC’s order finds that First Allied failed to retain certain business-related e-mails sent to and from its employees, as required under law.
In addition to requiring payment of $1.95 million in fines, the SEC censured First Allied and required the firm to cease and desist from committing future violations of books and records provisions.
First Allied also agreed to hire an independent consultant to review its policies and procedures as well as its system for implementing its policies and procedures.
First Allied consented to the order without admitting or denying the SEC’s findings.
