Nov 28, 2023
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SEC Charges Broker-Dealer with Violations of Gatekeeping Provisions Aimed at Protecting Investors
August 14, 2019 1:49 PM EDT | Source: Newsfile SEC Press Digest
According to the SEC's order, Canaccord published quotes and made markets in dozens of over-the-counter (OTC) securities without performing the review required by Exchange Act Rule 15c2-11, which requires that broker-dealers have a reasonable basis for believing the prospectus and other information made available by the issuer of the securities was accurate. The order finds that Canaccord delegated to a compliance associate the responsibility to obtain and review the information required by Rule 15c2-11 and to fill out and sign the necessary forms demonstrating compliance with the rule. The compliance associate had no trading experience and no formal training on conducting the requisite review, such as training related to the analysis of financial statements and other information. As a result of the deficient review performed by the compliance associate, Canaccord allowed dozens of OTC securities to be traded in U.S. markets without conducting the review required to protect investors. Canaccord has since revised and improved its policies and procedures with respect to Rule 15c2-11.
"Rule 15c2-11 imposes important responsibilities on broker-dealers to minimize the risk of fraud in the securities they sell to customers," said Daniel Michael, Chief of the Complex Financial Instruments Unit. "By rubber stamping certifications that it had done its homework on the securities in which it made markets, Canaccord failed to perform this critical gatekeeping function."
Without admitting or denying the SEC's findings, Canaccord consented to the institution of proceedings ordering that it cease and desist from committing or causing any violations and any future violations of Section 15(c)(2) of the Exchange Act and Rule 15c2-11, imposing a censure and ordering that it pay a $250,000 penalty.
The matter was investigated by James F. Murtha, Christopher C. Nee and Reid A. Muoio of the Division of Enforcement's Complex Financial Instruments Unit.