SEC Brings Settled Enforcement Action Against UBS PaineWebber for Failure to Supervise Broker, Imposes $500,000 Penalty
FOR IMMEDIATE RELEASE
Washington, D.C., August 20, 2003 -- The Securities and Exchange Commission today announced the institution of administrative proceedings against UBS PaineWebber, Inc. for failing to supervise a former registered representative, Enrique E. Perusquia, who defrauded his clients of tens of millions of dollars. PaineWebber simultaneously consented, without admitting or denying the Commission's findings, to the issuance of a Commission order finding that PaineWebber failed reasonably to supervise Perusquia and imposing a censure and a civil penalty of $500,000.
According to the Order, Perusquia, who was a Senior Vice President and registered representative at PaineWebber from June 1994 to March 1998, engaged in an extended fraud during the entire period of his employment. Perusquia has previously been subject to civil and criminal charges and is currently serving a sentence of 78 months in prison. Perusquia invested large portions of his clients' funds in a small group of highly speculative gold mining firms while he simultaneously received secret payments from the mining companies. In addition, Perusquia misappropriated funds from client accounts and engaged in unauthorized margin trading. The subsequent collapse of the gold mining firms, combined with Perusquia's other misconduct, caused Perusquia's clients to lose tens of millions of dollars.
According to the Order, Perusquia's clients held their funds at a Swiss bank. Perusquia conducted trades for the clients at PaineWebber through a so-called omnibus account in the name of the Swiss bank. Then, at the close of each day, Perusquia instructed the Swiss bank as to how to assign the trades to specific customer accounts. As a result of this arrangement, Perusquia's supervisors at PaineWebber did not know who the actual clients were.
The Order finds that PaineWebber did not have a procedure to ensure that Perusquia's supervisors knew basic information about the clients whose assets Perusquia was trading, such as their identities, contact information for the clients, their asset bases, their investment objectives or the suitability of the trades placed on their behalf by Perusquia. Nor did the firm establish a procedure to ensure that Perusquia's supervisors received and reviewed account statements or other trading summaries for the clients.
"Brokerage firms have a duty to adopt procedures reasonably designed to prevent fraudulent conduct by their employees," said Helane L. Morrison, District Administrator for the SEC's San Francisco District Office. "PaineWebber's failure to adopt such procedures made it easier for Perusquia to carry out his fraud."
The SEC and the U.S. Attorney's Office for the Northern District of California (USAO) have previously filed three separate actions against Perusquia. In a civil complaint filed by the SEC in the United States District Court for the Northern District of California, the Court entered a default judgment against Perusquia, enjoined him from future violations of the antifraud provisions of the federal securities laws, ordered him to disgorge $3.6 million, imposed $1.6 million in pre-judgment interest and imposed a civil penalty of $3.6 million. In a subsequent administrative proceeding against Perusquia, the Commission barred him from associating with a broker-dealer. And, in a criminal action filed by the USAO, Perusquia pled guilty, was ordered to make restitution of $68 million and was sentenced to 78 months in prison.
See Also: Administrative Proceeding Release No. 34-48371
- Helane L. Morrison, District Administrator, San Francisco District Office, Tel: (415) 705-2450
- Robert L. Mitchell, Assistant District Administrator, San Francisco District Office, Tel: (415) 705-2351, Fax: (415) 705-2501