SEC Commissioners Oppose Regulator’s Leniency Toward Oppenheimer, Despite Violations

SEC Commissioners Luis Aguilar and Kara Stein, both Democrats, say that they were among those that voted to grant Oppenheimer & Co. (OPY) special benefits even after the brokerage firm committed rules violations. It was just last month that the broker-dealer consented to pay a $20 million penalty while admitting to failures and resolving charges related to its failure to detect money laundering.

In that case, also settle with the Financial Crimes Enforcement Network, the firm did not properly identify and report suspicious penny stock trades, even though numerous Oppenheimer customers reportedly were involved in such activities. The broker-dealer admitted that it failed to establish a suitable anti-money laundering program and did not perform proper due diligence on a foreign correspondent account.

Yet, the regulator overturned the automatic disqualification that should have come with the violation. That happened when SEC Chairman Mary Jo White and the other two members (both Republicans) outvoted the Democratic member. Now, Oppenheimer is allowed to continue selling hedge funds to rich individuals. As part of the condition for the leniency, the broker-dealer will retain a law firm and consultant to make sure that its procedures and policies fall in compliance.

Aguilar and Stein said they were in opposition because they believe that Oppenheimer’s compliance culture is a ‘failed” one and that such a waiver was not deserved. They said that the SEC was disregarding the brokerage firm’s repeated securities law violations that have occurred over the years and exhibited too much leniency. They pointed out that even with the hiring of consultants in the past to report on remediation efforts, not much progress appears to have been made.

Typically, the Commission will grant waivers allowing firms to keep doing normal business, if this is considered in the best interests at the public. The Wall Street Journal points out that had the firm been deemed a “bad actor” this would have limited its ability to sell private fund investments for five years. Sans waiver, firms that violate specific securities laws are instantly restricted from taking part in private offerings.

Oppenheimer, however, pleaded its case. According to Law360, the broker-dealer sent a letter to the SEC’s Division of Corporation Finance, arguing that a bad actor ban was not warranted. The firm argued that the latest enforcement actions are unrelated to its previous securities transactions and a bar would hurt the brokerage firm and clients. Following Stein and Aguilar’s published dissent, the brokerage firm promised that to retain a law firm that was “fully independent” to perform the Rule 506 compliance checks.

An Oppenheimer spokesperson said that moving forward, the firm is committed to put into place a robust compliance infrastructure.

Please contact our securities lawyers if you suspect that you were the victim of securities fraud.

SEC Commissioners Blast Decision Not To DQ Oppenheimer, Law 360, February 4, 2015

SEC Turned ‘Blind Eye’ to Oppenheimer’s Failures, Democrats Say, The Wall Street Journal, February 4, 2015

More Blog Posts:
Oppenheimer to Pay $20M Settlement to the SEC and FinCEN Over Penny Stock Violations, Stockbroker Fraud Blog, January 28, 2015

SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds, Stockbroker Fraud Blog, November 3, 2014

Ex-Oppenheimer Fund Manager to Pay $100K To Settle Private Equity Fund Fraud Charges, Institutional Investor Securities Blog, January 25, 2014