SEC Charges 22 Unregistered Broker-Dealers-Going Public Attorneys

The Securities and Exchange Commission (SEC) Division of Enforcement is pursuing unregistered broker-dealer activity which runs rampant in the penny stock markets.  With a reduction of the number of small broker-dealers, there have been limited sources of capital available to small business issuers. As such, many have turned to finders and intermediaries. Recent enforcement actions demonstrate there are serious consequences for those who engage in unregistered broker-dealer activity. We expect the regulatory focus on unregistered broker-dealer activity to increase with the use of general solicitation and general advertising in Accredited Crowdfunding Offerings under Rule 506(c) offerings and Regulation A+. 

 On March 26, 2015, the Securities and Exchange Commission (SEC) charged nearly two dozen companies and individuals who regularly bought and sold securities on behalf of Global Fixed Income LLC without registering with the SEC as a broker-dealer as required under the federal securities laws.

The broker-dealer registration provisions of the securities laws ensure the protection of customers by requiring firms to undergo periodic inspections by the SEC and maintain books and records for their securities transactions.  A SEC investigation found that Global Fixed Income LLC, which was primarily in the business of purchasing investment grade corporate bonds, entered into agreements with third parties that acted as unregistered broker-dealers on its behalf and bought billions of dollars’ worth of newly issued bonds causing Global Fixed Income’s allocation in the bond offerings to increase.

Because the offerings were often oversubscribed, Global Fixed Income was generally able to sell or “flip” the bonds within a few days for a small profit, compared to the dollar value of the trade and then split profits with the third-party participants.

Global Fixed Income and its owner Charles Perlitz Kempf, who arranged the deals, agreed to settle the SEC’s charges along with 21 third-party participants.  They must collectively pay nearly $5 million in disgorgement of profits plus approximately $1 million in penalties.

“Global Fixed Income essentially hired firms to act as brokers on its behalf and purchase billions of dollars of newly issued bonds to increase profitability in the bond market, yet none of the firms or their employees were registered to legally act as brokers,” said Michele W. Layne, Director of the SEC’s Los Angeles Regional Office.

According to the SEC’s orders instituting settled administrative proceedings, the misconduct occurred from July 2009 to June 2012.  The order finds that Global Fixed Income and Kempf caused violations of Section 15(a)(1) of the Securities Exchange Act of 1934, and Kempf willfully aided and abetted violations of Section 15(a)(1).  The third-party participants committed violations of Section 15(a)(1) and include the following nine companies and 12 individuals:

• AGS Capital Group, which is based in Florida, and its owner Allen Gabriel Silberstein of Miami.
• Banes Capital Management, which is based in Tennessee, along with its owner Joel Banes of Memphis and Michael Warner Kochman of Springfield, N.J, an investment adviser at the firm at the time.
• Big Star Capital, which is based in Florida, and its owner Ryan Patrick McGuinness of Tampa.
• Esso Ventures, which is based in California, and its owner Mark Leonard Lechler of Pasadena.
• Etek Investment Management, which is based in New Jersey, and its part-owners Kevin Gregory Haley of Jenkintown, Pa., and David Boyle of Blackwood, N.J.
• Finmark Resources, which is based in New Jersey, and its owner Peter Eric Baker of New Jersey.
• Parker Paschal & Company, which is based in Louisville, and its owner Andrew Parker Shook of Louisville.
• PMK Capital Management, which is based in Florida, and its majority owner Roger Kumar Jr. of Ocean Ridge, Fla.
• RLJ Fixed Income, which is based in Bethesda, Md., and its Vice President Corey Antwuan Printup.
• Joseph Michael Araiz of New York City, a former owner and CEO of an investment adviser that is no longer in business.

Global Fixed Income, Kempf, and the third-party participants consented to the orders without admitting or denying the findings.  In addition to the disgorgement amounts set forth in the orders, Global Fixed Income agreed to pay a $500,000 penalty, each corporate participant agreed to pay a $50,000 penalty, and each individual participant agreed to pay a $5,000 penalty.  The SEC’s order suspends Kempf from associating with a registered entity or participating in a penny stock offering for 12 months.

For further information about SEC’s broker-dealer registration requirements, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida,(561) 416-8956, by email at [email protected] or visit  www.securitieslawyer101.com.  This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com