The SEC has charged a broker and his customer for conspiring to conceal alleged kickbacks in exchange for preferred IPO and secondary offering allocations. According to the SEC, the defendants agreed that the customer would kick back 24% of his trading profits. The defendants attempted to conceal the scheme by laundering the payments through multiple bank withdrawals of less than $10,000. The SEC maintains that the broker and the client repeatedly lied on compliance certifications about conflicts of interest and payments, which were required by the firms’ policies and procedures that specifically prohibited any type of conflict, allocation or payment scheme.
OUR TAKE: The SEC properly targets the persons that benefited from the scheme, rather than the firms that had adopted relevant policies and procedures and required specific certifications. It is also noteworthy that the SEC charged the enriched client and not just the broker. We believe this case shows the SEC’s continued focus on holding individuals, and not just organizations, accountable for bad behavior.