Oppenheimer Hit With $20 Million in Fines

Oppenheimer and Co. is an investment bank and full-service investment firm offering financial advisory services, capital market services, wealth management, investment banking, and related products and services worldwide.  In late January, the Securities and Exchange Commission (SEC) charged Oppenheimer and Co. with violating federal securities laws by improperly selling penny stocks in unregistered offerings on behalf of customers.

Penny Stocks 101

“Penny stocks” are common shares of small public companies that trade at comparatively low prices per share.  More specifically, the SEC defines a penny stock as a “security that trades below $5.00 per share, is not listed on a national exchange, and fails to meet other specific criteria.”

While some can and do make money off of penny stocks; they are, as a group, considered to be a high risk investment.  They tend to be highly volatile and subject to manipulation by stock promoters seeking large profits, fast.  To help protect investors, the United States has regulations governing penny stock trading.

Among other restrictions, Congress has prohibited broker-dealers from effecting transactions in penny stocks unless they “comply with the requirements of Section 15(h) of the Securities Exchange Act of 1934 and the rules thereunder.”  This rule provides that a broker dealer must (1) approve the customer for the penny stock transaction and receive from the customer a written agreement to the transaction; (2) furnish the customer a disclosure document describing the risks of investing in penny stocks; (3) disclose to the customer the current market quotation, if any, of the penny stock; and (4) disclose to the customer the amount of compensation the firm and its broker will receive for the trade.

Oppenheimer’s Wrongdoing

Oppenheimer is in trouble because of its relationship and interactions with Gibraltar Global Securities, a Bahamas-based brokerage firm that is not registered to do business in the U.S.  Oppenheimer executed trades for billions of shares of penny stocks for Gibraltar when it knew, or should have known, that the company was actually executing those trades for its own customers in violation of US securities laws (because it wasn’t registered).

Internal correspondence showed that Oppenheimer knew there was reason to be suspicious of Gibraltar, but wrongfully failed to report the company to US regulators and, instead, continued its business relationship with the company.  There is little question among regulators that Oppenheimer seriously failed in its duties to detect and report illegal trading. Andrew Ceresney, director of the SEC’s enforcement division stated that, “despite red flags suggesting that Oppenheimer’s customer stock sales were not exempt from registration, Oppenheimer nonetheless allowed unregistered sales to occur through its account, failing in its gatekeeper role.”

Oppenheimer’s $20 Million Punishment

Oppenheimer has admitted wrongdoing and will pay $10 million to settle the SEC’s charges and another $10 million to settle a parallel action by the Treasury Department’s Financial Crimes Enforcement Network.

To Learn More

For more information regarding this case and the regulations that protect investors from wrongdoing by broker-dealers and others contact the experienced security law attorneys at Silver Law Group.