SEC Charges Brokerage Firm for Short Sale and Other Violations
Sept. 16, 2019
File No. 3-19453
September 16, 2019 - The Securities and Exchange Commission today announced settled charges against Vandham Securities Corp., formerly a registered broker-dealer based in New Jersey, for violating federal securities laws governing the execution of short sales, the publication of quotations in unlisted securities, and the submission of suspicious activity reports (SARs).
The SEC's order finds that Vandham's customers were primarily other broker-dealers engaged in the liquidation of large volumes of shares in thinly traded, low priced over-the-counter stocks held by their customers. From at least January 2016 through April 2017, while registered with the SEC, Vandham derived the majority of its revenue from the trading profits it generated by facilitating the sale of such shares into the market for two broker-dealer customers.
According to the order, Vandham routinely facilitated its broker-dealer customers' sales into the market by executing short sales throughout the day for its own account in the stocks being sold by these other firms on behalf of their customers. The order finds that Vandham later purchased shares in those stocks at a lower price from the other firms, also in its own account, to cover Vandham's short positions. For at least several thousand such short sales during the relevant period, Vandham failed to locate shares of those stocks that it could borrow. The order further finds that Vandham often published offers on OTC Link's electronic quotation service to sell shares it had purchased from its broker-dealer customers without first obtaining and reviewing required documents and information about the shares' issuers. Also according to the order, Vandham did not implement its policies and procedures so as to reasonably address the risks of its business model, and as a result, Vandham failed to adequately investigate its customers' transactions and failed to file Suspicious Activity Reports for numerous transactions that displayed red flags identified in Vandham's own policies and procedures.
The SEC's order charges Vandham with violating the short-selling provisions of Regulation SHO Rule 203(b)(1), the quotation-publication provisions of Rule 15c2-11 promulgated under the Exchange Act of 1934, and the SAR-filing provisions of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder. Without admitting or denying the SEC's findings, Vandham agreed to be censured, to cease-and-desist from committing or causing violations or future violations of those provisions of the federal securities laws, and to pay a $200,000 civil penalty.
The SEC's investigation was conducted by David Zetlin-Jones, Daphne Downs, and George Stepaniuk, and was supervised by Sanjay Wadhwa of the New York Regional Office. The SEC's examination that led to the investigation was conducted by Hermann Vargas, Michael P. Fioribello, and Steven Vitulano, with assistance from Ilan S. Felix, and was supervised by Robert A. Sollazzo of the New York Regional Office. The SEC appreciates the assistance of FINRA.