SEC Charges Canadian Investment Adviser for Unregistered Broker-Dealer Activity Related to Penny Stocks

ADMINISTRATIVE PROCEEDING
File No. 3-22239

October 15, 2024 - The Securities and Exchange Commission charged Palos Management Inc., a Montreal-based investment adviser, and one of its portfolio managers, Robert Mendel, with providing brokerage services without being registered as a broker-dealer or otherwise being associated with a registered broker-dealer.  The SEC’s order finds that, from approximately July 2019 to February 2022, Palos and Mendel facilitated the purchase and sale of over 37 billion shares of penny stocks from dozens of issuers on behalf of U.S.-based clients without proper registration.

The SEC’s order finds that starting in early 2019, Palos and Mendel facilitated the purchase and sale of over 37 billion shares of penny stocks for U.S. clients, generating almost $290 million in proceeds. Specifically, on behalf of these clients, Respondents arranged the opening of custodial accounts with financial institutions; assisted in the removal of restricted legends from clients’ shares; accepted clients’ orders with volume and price limits; placed trades at executing brokers; and arranged settlement of the transactions and the wiring of proceeds. Respondents were paid transaction-based compensation for these brokerage services, which were distinct from Respondents’ investment advisory services.  Neither Palos nor Mendel was registered as a broker-dealer or otherwise associated with a broker-dealer. 

The SEC’s Order finds that Palos and Mendel willfully violated Section 15(a)(1) of the Securities Exchange Act of 1934. Without admitting or denying the findings, Respondents agreed to cease and desist from future violations and to a censure. Palos agreed to pay a civil penalty of $575,000, and Mendel agreed to pay a civil penalty of $35,000 and to a three-year penny stock bar.    

The SEC’s investigation was conducted by Drew Grossman and Steven Susswein and was supervised by Pei Chung and Stacy Bogert, with the assistance of Brian Palechek and Christopher Bruckmann. The examination that led to Enforcement’s investigation was conducted by Sujata Mann, Ragni Walker and Peter Haggerty of the Division of Examinations. The SEC appreciates the assistance of the Autorité des Marchés Financiers, Quebec, with this investigation.