In certain instances, broker-dealers who transact business in the penny stock arena may expose themselves to regulatory scrutiny and related liability. For example, Aegis Capital Corp. (“Aegis”) (CRD# 15007) has come under considerable regulatory scrutiny by both the SEC and FINRA with respect to its activities concerning low-priced securities transactions. Formed in 1984 and headquartered in New York, New York, Aegis is a mid-sized, full service retail and institutional broker-dealer. As of March 2017, Aegis employed approximately 415 brokers in its sixteen branches, with the bulk of its workforce centered in New York City and Melville, NY.
According to FINRA BrokerCheck, Aegis’ regulatory history includes a total of thirty (30) disclosure events, a number of which involve penny stocks. For instance, in August 2015, Aegis entered into a settlement with FINRA, pursuant to which the broker-dealer agreed to pay $950,000 in sanctions over allegations of improper sales of unregistered shares of penny stocks, as well as certain AML violations. In connection with that regulatory event, two of Aegis’ compliance officers were suspended for 30 and 60 days, and ordered to pay fines of $5,000 and $10,000, respectively. On March 28, 2018, the SEC imposed a cease-and-desist order (“Order”) against Aegis for its alleged supervisory failures concerning penny stocks. Further, the SEC penalized Aegis $750,000 after the brokerage firm admitted that it failed to file required suspicious activity reports (“SAR’s”) on numerous penny stock transactions from “at least late 2012 through early 2014.”
In early 2014, Aegis acted as the underwriter to an IPO for stock priced at $5.50 in Akers Biosciences, Inc. (“Akers”). Akers (Nasdaq: AKER), headquartered in Thorofare, NJ, “[d]evelops, manufactures, and supplies rapid screening and testing products designed to deliver healthcare information to healthcare providers and consumers in the United States, the People’s Republic of China, and internationally.” As recently reported, on May 21, 2018, Akers filed a 8-K with the SEC, disclosing that “the Company has been reviewing the characterization of certain revenue recognition items for the quarter ended March 31, 2018.”
Following Akers’ May 21 disclosure with the SEC, its share price fell over 8% to $0.59 per share on May 22, 2018. Shortly thereafter, on May 29, 2018, Akers issued a press release indicating that “Raymond F. Akers Jr., Ph.D has resigned as a director of the Company…” As a result of this news release, shares of Akers fell another 33% in value to close trading at $0.39 per share on May 29, 2018.
On June 5, 2018, Akers filed another 8-K with the SEC, in response to a letter received from Mr. Akers’ attorney. This June 8th 8-K characterized the previous 8-K as “false” and “totally misleading” and further, disclosed that Mr. Akers was purportedly acting as a whistleblower and had apparently refused to approve the annual 10-K for 2017. Following this disclosure, class action litigation was initiated against Akers and certain of its officers, alleging that during the class period (May 15, 2017 through June 5, 2018, inclusive), acquirers of AKER shares were damaged due to alleged “false and materially misleading statements regarding the Company’s business, operational and compliance policies.”
Brokerage firms including Aegis have a duty to ensure that their business activities surrounding speculative low-priced securities are conducted in accordance with a reasonable compliance system which includes specific written supervisory procedures. Further, any recommendation by a financial advisor to invest in a speculative penny stock must conform to NASD Rule 2310 and FINRA Rule 2111 – the so-called suitability rule – which is premised on the brokerage firm and financial advisor obtaining information about the customer in order to ascertain that investor’s profile, including the investor’s age, other investments, financial situation and needs, tax status, investment experience and risk tolerance. In instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.
Attorneys at Law Office of Christopher J. Gray, P.C. have significant experience resolving disputes on behalf of investors, including losses sustained due to instances of fraudulent conduct, market manipulation, and unsuitable investment recommendations. Investors may contact a securities attorney by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.