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Statement Regarding In the Matter of Aegis Capital Corporation

July 28, 2022

The Commission’s Order finds that Aegis Capital Corporation violated various provisions of the federal securities laws because, among other things, certain of its registered representatives made unsuitable recommendations that customers invest in a complex financial instrument. I am unable to support the Order for a number of reasons, but write to highlight one particularly problematic aspect.

The Order recites that “[i]n determining to accept [Aegis’s offer of settlement], the Commission considered remedial acts undertaken by [Aegis] and the CEO’s sworn certification” that Aegis had in fact undertaken the listed remedial acts. Among the remedial acts that the Commission took into consideration is that, during the Commission’s investigation, Aegis adopted a policy that “expressly prohibit[s] the firm and its associated persons from purchasing [Variable Rate Structured Products (“VRSPs”)] for retail customer accounts.” I can understand why Aegis adopted a policy that flatly prohibits its registered representatives from recommending VRSPs to retail customers, given that the Commission was investigating it for that precise conduct. I am concerned, however, that by citing this policy—backed up by a CEO certification—as a consideration in accepting Aegis’s settlement offer, the Order inadvertently suggests that certain investment products, categorically, should be unavailable to certain types of investors. Other firms might think they have to follow suit. And what if Aegis later determined that a subset of investors would be well-served by these products? Could it change its policy without running afoul of the Commission’s order?

Complex financial instruments like VRSPs undoubtedly are unsuitable for some retail investors. Nevertheless, investors, working with their chosen financial professional, should be free to fashion their investment portfolios in the way that best suits their investment objectives and life circumstances. The Commission’s orders should not intimate that certain types of investments are never suitable for particular classes of investors. I am concerned that the Commission’s acknowledgment of, and reliance on, the remedial step taken here by Aegis may be read either as implying that an absolute prohibition on the sale of a specific product is the only acceptable remedial measure here or as an expectation for other firms dealing with retail clients.

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