SEC Settles Charges Against Broker-Dealer for Failure to Supervise Brokers Who Made Unsuitable Recommendations

ADMINISTRATIVE PROCEEDING
File No. 3-20054

September 24, 2020 - The Securities and Exchange Commission today announced settled charges against Garden City, New York-based broker-dealer Morgan Wilshire Securities, Inc. for failing to supervise registered representatives who made unsuitable investment recommendations to retail brokerage customers.

The SEC's order finds that from at least January 1, 2015 through March 31, 2019, registered representatives at Morgan Wilshire recommended inverse exchange-traded funds to retail brokerage customers without having a reasonable basis for believing the recommendations were suitable for those customers. As the order finds, inverse exchange-traded funds are complex financial instruments that may cause investors to experience large and unexpected losses that exceed the inverse return of the index they are designed to track. The order finds that Morgan Wilshire failed to implement its policies and procedures in order to reasonably supervise its registered representatives in connection with their recommendations to buy inverse exchange traded funds, with a view to preventing and detecting the registered representatives' violations of Section 17(a)(3) of the Securities Act of 1933 (the "Securities Act").

The SEC's order finds that Morgan Wilshire failed reasonably to fulfill its supervisory responsibilities within the meaning of Securities and Exchange Act of 1934 Section 15(b)(4)(E), which requires broker-dealers to establish a system for implementing policies and procedures that would reasonably be expected to prevent and detect violations of the federal securities laws. Without admitting or denying the findings in the Commission's order, Morgan Wilshire consented to a censure, to pay disgorgement of $87,609.09 and prejudgment interest of $16,408.08, and a $75,000 civil penalty.

The SEC's investigation was conducted by Joseph P. Ceglio, Michael P. Fioribello, and Thomas P. Smith, Jr., and was supervised by Lara Shalov Mehraban. The investigation was prompted by an examination by Jeffrey H. Berfond, Stephanie M. Buonaguro, Michael P. Fioribello, and Linda A. Lettieri from the New York Regional Office Broker-Dealer Examination Program.