SEC Charges Individuals for Assisting Broker-Dealer's Net-Capital Violations
Litigation Release No. 24702 / January 2, 2020
Securities and Exchange Commission v. Benjamin Mekawy and Alan D. Seidel, No. 19-civ-11731 (S.D.N.Y. filed Dec. 23, 2019)
The Securities and Exchange Commission charged Alan D. Seidel, the former CEO of a now defunct broker-dealer, and Benjamin Mekawy, a former employee, for engaging in deceptive conduct that enabled the broker-dealer to report inaccurate net-capital amounts.
As alleged in the SEC's complaint, broker-dealers are required to operate with a minimum amount of net capital, and must maintain and report the difference between certain assets and liabilities. Broker-dealers that are not in compliance with the net-capital rules must cease operations. The complaint alleges that Seidel, who knew the firm's net-capital position was precarious, falsely represented to the broker-dealer's outside accounting firm and to the staff of the SEC's Office of Compliance Inspections and Examinations that loan proceeds were a capital infusion. It further alleges that Mekawy forged one of the broker-dealer's account statements to inflate the broker-dealer's cash position and knowingly concealed a substantial six-figure liability.
The complaint, which was filed in the United States District Court for the Southern District of New York, charges Seidel and Mekawy with aiding and abetting the broker-dealer's violations of the net-capital provision of Sections 15(c)(3) of the Securities Exchange Act of 1934 and Rule 15c3-1 thereunder, and charges Mekawy with aiding and abetting the broker-dealer's violations of Section 17(a)(1) of the Exchange Act and Rule 17a-3(a)(19) thereunder, which requires that broker-dealers keep accurate records of all assets and liabilities. The complaint seeks permanent injunctions and civil penalties.
The SEC's ongoing investigation is being conducted by Philip A. Fortino, John O. Enright, and Sheldon L. Pollock and is being supervised by Lara S. Mehraban. The litigation will be handled by Mr. Fortino and Dugan Bliss. The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York and the U.S. Postal Inspection Service.