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SEC Charges Broker And Registered Representative In Complex Unsuitable Investments Case

On July 29th, 2022, the Securities and Exchange Commission (SEC) released a litigation update in the matter of Aegis Capital Corp (CRD#: 15007/SEC#: 801-71386, 8-31616). The federal agency has charged the company’s former managing director Alan Z. Appelbaum (CRD#: 500336) as well as former registered representative Paul F. Gallivan (CRD#: 5793918) in relation to a complex unsuitable investment case. In this blog post, our Miami unsuitable investment trading losses attorney discusses the charges from the SEC.

 SEC Allegations: Unsuitable Investment Recommendation of Highly Structured Securities 

The SEC filed its complaint against Aegis Capital Corp, Alan Z. Appelbaum, and Paul F. Gallivan in the United States District Court for the Southern District of Florida. In the complaint, the SEC contends that the broker-dealer, its managing director, and one of its registered representatives violated securities industry rules by aggressively recommending unsuitable financial products to at least seven different investors.

The financial products in question were a type of highly structured securities called VRSPs. The seven investors in question informed the brokerage firm that they had “moderate risk tolerance.” However, they were recommended VRSPs despite the fact that these highly structured securities were both complex and risky investments. The SEC also alleges that Mr. Appelbaum in particular made material misleading representations to investors.

Financial Industry Regulatory Authority (FINRA)  guidelines are clear: Under FINRA Rule 2111, brokers and brokerage firms have an obligation to make reasonably suitable investment recommendations to their clients. They can be sanctioned and held financially responsible for losses related to their failure to do so. 

Civil Settlements Reached With Aegis Capital Corp and Mr. Gallivan 

The SEC reports that civil settlements have been reached with Aegis Capital Corp and its former registered representative Paul F. Gallivan. Here is an overview of the settlements:

  • Aegis Capital Corp: Without admitting or denying any of the specific allegations raised, Aegis Capital Corp has consented to the SEC’s proposed civil penalties. The broker dealer has accepted a censure, agreed to a cease-and-desist of future violations, will pay disgorgement of more than $220,000, and will pay $2.3 million in civil financial penalties.
  • Former Registered Representative Paul F. Gallivan: Without admitting or denying any of the specific allegations, Mr. Gallivan has also consented to the SEC’s civil penalties. He will pay nearly $30,000 in disgorgement and an additional $25,000 in civil fines. Notably, Mr. Gallivan is not currently a registered representative. 

Thus far, no settlement has been reached with the former managing director of Aegis Capital Corp Alan Z. Appelbaum. The SEC plans to pursue litigation against Mr. Appelbaum in the coming months. 

Schedule a Confidential Consultation With Our Florida Unsuitable Trading Losses Lawyer

At ​Carlson & Associates, P.A., our South Florida FINRA arbitration lawyers have the skills and expertise to represent investors in unsuitable investment claims. Brokers and broker-dealers have a duty to ensure clients receive suitable investment guidance. They can be held liable for losses caused by unsuitable investment recommendations. Contact us now for a fully confidential review and evaluation of your case.

Source:

sec.gov/litigation/litreleases/2022/lr25459.htm

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