A stockbroker’s ethical duties extend to all of his or her securities dealings and clients. Assisting even one client in activities that run afoul of applicable securities laws and regulations may constitute a breach of that duty.
In today’s story, the stockbroker who formerly worked for Texas investors Samuel and Charles Wyly has agreed to a settlement of almost $500,000 in a pending securities fraud lawsuit. Along with his former clients, the stockbroker was a named defendant in the litigation that officials from the U.S. Securities and Exchange Commission initiated in July 2010. He is the first defendant to reach a settlement, however.
According to the SEC’s complaint, the stockbroker assisted his former clients in an alleged $550 million fraud. The SEC claims that the Wyly brothers hid stock sales from four companies in offshore trusts. The brothers were either founders or board members in each of the companies. The hidden sales may have been part of a strategy to avoid alarming investors of falling market conditions, possibly indicating a bear market. The stockbroker may also have used information available to him as the brothers’ stockbroker to commit illegal insider trading, allegedly through his wife’s accounts.
A securities fraud attorney knows how important market signals can be to investors. The strategies applicable to a bear or bull market can be very different. For example, investors may prefer more stable securities in a bear market, such as short-term government bonds. More aggressive investors may opt for short selling, believing that stock prices will continue to fall. Either way, investors depend on free and open information to accurately gauge market conditions.
Source: Reuters, “Wylys' stockbroker settles SEC fraud, insider trading case,” Jonathan Stempel, Jan. 8, 2014