Canaccord Genuity recently agreed to pay the Securities and Exchange Commission a penalty of $250,000 for gatekeeping provision violations. The company did not agree or deny the agency’s allegations but would have to suffer a censure.
Charges against the company
The SEC revealed its charges against New York City-based broker-dealer Canaccord Genuity LLC. The agency alleges that the broker did not conduct a review mandated by the federal securities law before allowing trading in several thinly-traded securities.
The regulator alleges that the firm was operating as a market maker in several OTC securities. However, it failed to perform reviews of securities required by the Exchange Act Rule 15c2-11. This rule ensures that broker-dealers reasonably believe that the issuer of the securities has made an accurate prospectus available to the buyers.
So where did Canaccord go wrong?
Instead of completing the review on its own, the company delegated the responsibility of obtaining and reviewing the information required under law to a compliance associate. They were also asked to sign the forms essential to ensure compliance with the rule. The choice of compliance associate by the broker was questionable as the person had no training related to financial statement analysis and did not have any trading experience.
Because of the deficiency in its review process, the company allowed dozens of OTC securities to trade in the US market. This is considered a lack of due diligence to ensure the protection of investors. The company has revised its policies and improved its review process to better reflect its compliance with Rule 15c2-11.
Interestingly, the company has neither confirmed nor denied the allegations made by the SEC. However, it has agreed to cease and desist from any future violations of Section 15(c)(2) of the Exchange Act and Rule 15c2-11. The company has been imposed with the censure and will have to pay $250,000 in a penalty to the agency.
