Wall Street's watchdog suspended the founder and president of Wedbush Securities for not adequately supervising the financial company's regulatory filings, which, in many cases, were late or inaccurate, according to an order.
Edward William Wedbush, president of the Los Angeles-based financial company who founded it in 1955, was suspended from performing most of his supervisory activities for 31 days, according to a Financial Industry Regulatory Authority hearing panel decision.
FINRA also fined him personally $25,000 and the firm $300,000 for the violations, according to the August 2 order. "The action (is) under appeal," The firm said in a statement. Edward Wedbush did not immediately return a call seeking comment.
Suspending the head of a brokerage or financial company in any capacity is "very unusual," said Michael McAllister, a securities lawyer for Satterlee Stephens Burke & Burke LLP in New York, who is not involved in the case.
While Edward Wedbush will be allowed to supervise trading and the entry of customers' securities orders, the suspension will still hinder his oversight, said Robert Frenchman, a securities lawyer for Bracewell & Giuliani LLP in New York, who is also not involved in the case.
For example, he will be unable to approve many business activities or make a range of hiring and firing decisions. The suspension and fines are not effective while the first appeals are pending.
The heads of Wall Street's smallest brokerages are more at risk for such penalties than those at larger firms because of their frequent involvement in running the business. But the action is rare at a firm the size of Wedbush, said McAllister.
Wedbush, a unit of WEDBUSH Inc, has about 900 employees and four divisions, according to the FINRA order.
The enforcement case against Wedbush Securities began in 2010, eight years after regulators began finding problems.
"While the problems were not ignored, they were not fixed," wrote the hearing officer. The case focused on violations between 2006 and 2010, but regulators knew of problems since 2002, when the firm was late to report customer complaints, as industry rules require. The order also said Wedbush was late to report the results of litigation in which the firm was involved.
A FINRA spokeswoman declined immediate comment on the delay in prosecuting the enforcement case.
Wedbush "offered many of the same excuses" and commitments to improve its procedures but "there was no meaningful improvement" in its compliance, the order said.
FINRA's patience seemed to thin in 2009. That's when Wedbush was 275 days late to report one customer's complaints about unauthorized trading and another's about unsuitable investments for a client's elderly mother.
Edward Wedbush was partly to blame for those violations, said FINRA, because he managed the brokerage's business conduct department during the period and was also the firm's president. He was also a chief compliance officer from 2006 to 2007.
FINRA, Wall Street's industry-funded watchdog, regularly examines brokerage firms for their compliance with securities industry rules. Most of the disclosures it requires are publicly available on a free database it offers to help inform investors, who are choosing a brokerage or financial adviser.
FINRA's hearing panel counted more than 100 instances in which Wedbush did not file mandatory forms and reports, or was inaccurate or late. Some involved customer complaints about improper sales practices.
In one instance, Wedbush waited almost a year to disclose that a broker it hired in 2009 pled "no contest" to misdemeanor burglary 14 years earlier, FINRA said. Wedbush argued that it "took some time to determine if the matter was reportable."
The firm was also five years late to report that a lawsuit alleging market manipulation against the company and Edward Wedbush had been dismissed after the parties settled, according to the order. The disclosure, however, said that Wedbush, the executive, was "not guilty" when there was never a finding that he was not liable, according to the order.
(Reporting By Suzanne Barlyn; Editing by Chelsea Emery and Leslie Gevirtz)