Investors in speculative microcap and nanocap securities may have arbitration claims to be pursued before FINRA, in the event that the recommendation to invest lacked a reasonable basis, or if the nature of the investment, including its risk components, was misrepresented to the investor. Both FINRA and the SEC have issued ample guidance with regard to the numerous risks associated with investing in speculative microcap (or “penny”) stocks, including the potential for fraudulent schemes and market manipulation due to the lack of public information concerning the companies’ underlying business and management, as well as verifiable financials.
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.”