Corporate & Securities Law

The SEC has charged First Allied Securities with failing to supervise a broker who defrauded two Florida municipalities. First Allied Securities has agreed to settle the SEC's findings by paying $1.95 million.  The SEC charged the firm's former broker, Harold Jaschke, with fraud last year.

The SEC's administrative order instituting the settled proceedings against First Allied finds that between May 2006 and March 2008, Jaschke executed numerous unauthorized transactions, made unsuitable recommendations, and churned the accounts of the City of Kissimmee, Florida and the Tohopekaliga Water Authority.  The SEC finds that First Allied failed reasonably to supervise Jaschke because it did not establish reasonable systems to direct follow-up action in response to red flags regarding churning and suitability.

Critically, and according to the SEC's order, First Allied waited nine months before contacting the municipalities through self-described "annual review" letters that, in actuality, did not relate to annual reviews.  The letters also failed to inform them about the suspicious trading activity occurring in their accounts.  Additionally, the order finds that First Allied had no system in place to monitor compliance with its rule prohibiting its brokers from using personal e-mail accounts to conduct business.  This enabled Jaschke to use his personal e-mail account to send and receive business-related e-mails that were neither reviewed nor retained by the firm and as required by SEC regulations.  The SEC's order finds that First Allied failed to retain certain business-related e-mails sent to and from its employees.

Source:  SEC Release 2010-35