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Robert W Pearce
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Mr. Pearce has tried, arbitrated and mediated numerous disputes involving complex securities, commodities, administrative, contract, commercial, business tort and employment law issues for over 30 years. He has represented hundreds of clients in Federal and state courts (trial and appellate) as... More
My company:
The Law Offices of Robert Wayne Pearce, P.A.
My blog:
The Investor's Rights Law Blog
    Oct 15, 2013 4:11 PM

    Delaney Equity Group, LLC, a Palm Beach Gardens, Florida based brokerage firm, and David Cameron Delaney, a West Palm Beach, Florida based broker, were named respondents in a Financial Industry Regulatory Authority (FINRA) complaint alleging that the firm, acting through Mr. Delaney, failed to conduct adequate due diligence to determine whether they were participating in a scheme to evade the registration requirements of the Securities Act of 1933 by selling shares of low-priced equity securities that were unregistered and non-exempt. A firm customer had obtained almost $2.4 million through the sale of these unregistered securities, which ceased only when the firm's clearing firm restricted the customer's accounts. The complaint alleges that the firm relied on opinion letters by single counsel representing all of the issuers, who was later found to have issued inaccurate correspondence to the over-the-counter (OTC) markets and failed to note the contradiction in the customer's actions and representations. The firm sold almost a billion shares of common stock on the customer's behalf that were not registered with the Securities and Exchange Commission (SEC), and no exemption from registration applied to such sales.

    FINRA's complaint also alleges that the firm failed to establish, maintain and enforce adequate policies and procedures, including written supervisory procedures (WSPs), reasonably designed to ensure compliance with the Securities Act to prevent the sale of unregistered securities not exempt from registration. The firm allegedly failed to develop and implement anti-money laundering (AML) policies, procedures, and internal controls reasonably designed to achieve compliance with regulations. The complaint further alleges that the AML procedures failed to address the detection, monitoring, analyzing, investigating, and reporting of suspicious activity in the context of its securities liquidation business. The firm and Mr. Delaney should have detected the suspicious nature of a customer's liquidation of low-priced securities, investigated the activity, and made a suspicious activity report (NYSE:SAR), but instead they permitted the customer's suspicious trading activity to occur and failed to report any activities.

    Moreover, the complaint alleges that the firm either failed to identify or ignored red flags involving numerous instances of potentially suspicious activities and thus failed to sufficiently investigate and report these activities in accordance with its WSPs and implementing regulations. Moreover, the complaint alleges that when the firm became a FINRA member, it agreed as part of its membership agreement that a registered representative or broker would be subjected to heightened supervision. The firm's WSPs required brokers with prior disciplinary disclosures to be placed under heightened supervision, but the firm failed to cause the order memoranda to be initialed prior to the broker's execution of transactions or to verify his customers' account information.

    Furthermore, the complaint alleges that Mr. Delaney assigned another principal to conduct the heightened supervision, but the principal was not consistently available to implement such supervision because he reported to work only two or three days per week. In addition, the principal relied on Mr. Delaney to notify him if any of the broker's accounts exhibited third-party trading authority although Mr. Delaney was prohibited from directly supervising the broker due to the firm's membership agreement. The firm also failed to enforce its WSPs and impose heightened supervision on the broker.

    The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. Please see our Instablog profile (left column) for ways to contact us and get answers to any of your questions about this blog post and/or any related matter.

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