Posted in: "Pump and Dump" Schemes | FINRA | SEC | Greedy Brokers | Breach of Fiduciary Duty | Risky Investments |
In March 2004, the Securities and Exchange Commission filed a formal complaint against Universal Express and its executives for marketing-and selling-unregistered penny stocks in a fraudulent manner. According to the SEC, the firm had issued billions of shares worth millions of dollars after issuing fake news releases which boasted of fictitious revenues.
Late last month, FINRA went after five broker-dealers which had directly sold Universal Express stock to customers who were unaware of the firm’s financial state. Alpine Securities, Fagenson & Co., Olympus Securities and RBC Capital Markets Corporation allegedly sold their customers this worthless penny stock after the SEC had prevailed in its lawsuit and barred Universal Express from the securities industry.
It’s unclear whether the broker-dealers, or Universal Express, demonstrated more deplorable behavior in this case.
A court-appointed receiver for Universal Express reported that none of its operations were profitable, which means its entire revenue source was from fraudulent stock offerings. Its CEO, Richard Altomare, ran a full-page ad in the New York Times denouncing an investigative article written about his company-he would later default on payment for the loan.
But even though Altomare and his company clearly lied to investors, these broker-dealers should have known better and certainly should not have ignored SEC red flags. Alpine Securities, an independent broker-dealer in Utah, sold $2.7 worth of Universal Express to customers so it could net $47,000 in commissions. On its Web site, RBC Capital touts itself as a premier investment bank with 75 offices and 15 countries, but we are supposed to believe it missed an SEC lawsuit involving one of its products?
These broker-dealers were either careless, or greedy, or both. Any firms that sell shares of company under investigation from federal regulators need their own business practices scrutinized as well.
