The Securities and Exchange Commission announced charges Friday against Wedbush Securities Inc., a Los Angeles-based market access provider and two of its officials.
The SEC said poor risk controls resulted in Wedbush granting market access to overseas traders without prea-approval and without ensuring they complied with U.S. law.
Wedbush didn’t have the required pre-trade controls, failed to restrict trading access to people whom the firm pre-approved and authorized, and did not conduct an adequate annual review of its market access risk-management controls, the SEC said.
The company denied denied the SEC’s allegations and said it had in place reasonable and adequate controls.
The SEC said the violations were caused by Jeffrey Bell, the former executive VP in charge of Wedbush’s market access business, and Christina Fillhart, a senior VP in the market access division, failing to respond to red flags concerning the firm’s lack of control.
“We will hold Wedbush accountable for reaping substantial profits while failing to protect U.S. markets from the risks posed by these traders,” said Andrew J. Ceresney, director of the SEC Enforcement Division.
According to the SEC, Wedbush also violated anti-money laundering requirements and preservation of records rules.
In a response posted on its website Friday, Wedbush said in part:
In 2011, Wedbush Securities discussed its processes and controls with SEC staff before the market access rule became effective and promptly implemented the SEC staff’s recommendations at the time. The firm proactively contributed to the process through a constructive comment letter to the SEC in March 2010. In several respects, however, the SEC now seeks to impose additional regulatory requirements retroactively, through enforcement proceedings, without giving fair notice of its expectations in advance. Wedbush Securities believes this approach is unfair and fails to serve the goals of securities regulation.
The SEC’s June 6, 2014 release is here.
Julie DiMauro is the executive editor of FCPA Blog and can be reached here.