In August 2012, The Financial Industry Regulatory Authority (“FINRA”) fined Los Angeles, California-based brokerage firm Wedbush Securities $300,000 for repeated violations of regulatory rules. FINRA also fined Wedbush’s President and founder, Edward Wedbush, $25,000 and suspended him for 31-days for supervisory failures. The suspension of a broker-dealer’s president is unusual and indicative of serious misconduct. This is but the latest in a very long string of regulatory censures and fines for Wedbush Securities, which does not appear to display much concern for its regulatory obligations or its duties to its customers.
The regulatory decision was a culmination of a range of offenses, inquiries, and disciplinary violations taking place from 2006 through 2010. FINRA charged Wedbush with, among other things, failing to report customer complaints in a timely and accurate manner, and in some cases failing to file reports at all. FINRA specifically fined and suspended Mr. Wedbush for failing to supervise his brokerage firm’s conduct. FINRA’s hearing panel counted more than 100 instances in which Wedbush Securities did not file mandatory forms and reports, or was inaccurate or late, some of which involved customer complaints about improper sales practices.
In the last few years, Wedbush Securities has been the target of a wave of customer and employee arbitration claims accusing the brokerage firm of various forms of misconduct. Some of the claims have involved Wedbush Securities’ sales of securities issued by the Provident/Shale Royalties Ponzi scheme and Wedbush Securities’ failure perform adequate due diligence on the Ponzi scheme before recommending and selling the securities to customers.
Notably, the Wedbush Securities stockbroker who sold the Provident Ponzi scheme investments, Bambi Holzer, had been the subject of approximately 50 prior customer complaints at the time that Wedbush Securities hired her. Moreover, California securities regulators were so concerned about Ms. Holzer’s terrible record of customer complaints, it ordered Wedbush Securities to implement special supervisory procedures over Ms. Holzer in order to protect the investing public. Unfortunately for investors, Wedbush Securities failed to supervise Ms. Holzer adequately even under those circumstances. Indeed, Wedbush Securities’ own internal records contain an admission that the brokerage firm was not performing its heightened supervision over Ms. Holzer. In April 2012, the national securities law firm Dimond Kaplan & Rothstein, P.A. obtained an arbitration award against Wedbush Securities in the case Ken Kragen v. Wedbush Securities, FINRA Case No. 10-05751, including compensatory damages, attorneys’ fees and costs, for Wedbush’s recommendation and sale of the Provident Ponzi scheme.
Based on Wedbush Securities history of repeated regulatory violations and customer abuses, we do not expect FINRA recent round of fines and suspensions to have any affect on Wedbush Securities’ way of doing business. Dimond Kaplan & Rothstein, P.A. continues to represent several former Wedbush Securities customers who have lost well over $1 million as a result of various forms of brokerage firm misconduct.