First Allied Securities, Inc, a San Diego-based broker-dealer, was charged with failing to reasonably supervise one of its registered representatives. The Broker engaged in unauthorized fraudulent trading in the accounts of two Florida municipalities. The Securities Exchange Commission (SEC) reports that First Allied has agreed to settle the charges for nearly $2 Million.
The SEC alleges that Harold H. Jaschke, former First Allied Broker, churned the accounts of two Florida municipalities and misrepresented his trading practices on their behalf. The two Florida Municipalities involved, were the City of Kissimmee and the Tohopekaliga Water Authority. In late 2009, Harold Jashke was charged with fraud for making over $4 million in commissions while his customers lost money due to his fraudulent behavior.
The SEC found that this fraud occurred from May 2006 and March 2008. This matter could have been avoided if First Allied identified the "red flags" and adequately supervised Jaschke, according to SEC reports.
The supervision of broker-dealers is taken seriously by the SEC. Rosalind Tyson, Director of the SEC’s Los Angeles Office stated the following:
"By failing to establish reasonable systems to prevent Jaschke’s misconduct, Fist Allied did not fulfill its obligation to reasonably supervise its registered representative.”
In addition to the settlement, First Allied agreed to censorship by the SEC. They will cease and desist from “committing or causing any future violations of certain books and records provisions,” and will hire an independent consultant to review First Allied's company’s policies and procedures.
Investor Tip: Be aware of your Broker’s method of managing your portfolio. A common fraudulent practice by brokers is the use of excessive trading to generate commissions and other revenue without regard for the customer's investment objectives, this practice is known as churning.
We encourage Investors to read monthly statements carefully. Ask questions about your Broker's investment strategy for your portfolio. If you suspect find that a Broker is engaging in unethical behavior with your investments, speak up and do so quickly. This can help save many headaches if the fraud is caught early on.
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