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SEC Fines Broker $10 Million for Laundering Penny Stocks

On January 27th, the U.S. Securities and Exchange Commission said New York-based broker Oppenheimer & Co., Inc., admitted to multiple violations of federal securities laws and agreed to pay a $10 million civil penalty. The SEC’s order cited two series of illegal activities by Oppenheimer. Both involved Oppenheimer acting as an intermediary for unregistered brokers looking to distribute billions of dollars in “penny” stocks.

In the Matter of Oppenheimer & Co., Inc.

In the first scheme, the SEC discovered Oppenheimer had acted as a front for a Bahamas-based brokerage, Gibraltar Global Securities, Inc. Between 2008 and 2009, Gibraltar executed penny-stock trades through an Oppenheimer account. The SEC said this was nothing more than an effort to evade proper reporting and taxation of securities trades to the United States government. As a foreign entity, Gibraltar is not subject to U.S. taxation. It used this tax-exempt status to front penny-stock trades on behalf of individual clients who should have been paying taxes on those transactions.

The SEC said Gibraltar executed more than 1,800 trades—netting investors nearly $15 million—through its Oppenheimer account. Oppenheimer “knew or was reckless in not knowing” the true nature of these trades. Indeed, many of the trades were expressly executed “for the benefit of” Gibraltar customers rather than Gibraltar itself. Many of these customers were known to be residents of the United States. U.S. brokers have a legal obligation to conduct proper reporting and tax withholding for all resident customers.

In the second scheme, the SEC said Oppenheimer illegally acted on behalf of an unnamed customer who distributed billions of shares in penny stocks. Similar to Gibraltar, the unnamed customer here acted as a broker reselling penny stocks while using Oppenheimer as a front. The customer was not, according to the SEC, a licensed broker and did not qualify for legal exemptions applicable to the resale of securities. Once again, the SEC said there were a number of “red flags” that should have alerted Oppenheimer management as to what was going on, and they either ignored or failed to heed such warnings.

As part of its settlement with the SEC, Oppenheimer agreed to hire an independent consultant to review the brokerage’s ongoing compliance with federal securities laws. The consultant will issue a report within the next four months, and Oppenheimer is legally obligated to adopt any reasonable recommendations made by the consultant. The consultant will also conduct annual reviews of Oppenheimer’s compliance during the next four years.

Investing Legally and Responsibly

Investing responsibly means complying with all applicable U.S. securities and tax laws. Investors should steer clear of unregistered “offshore” brokerages that try to avoid U.S. regulation by operating illegally through an intermediary. The SEC considers such behavior a form of money laundering, and as the Oppenheimer settlement demonstrates, the government will not hesitate to take action.

If you have been the victim of illegal or unscrupulous broker activity and require advice as to your legal rights, contact Florida securities fraud attorney Gregory Tendrich, P.A., right away.

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