SEC Writes A $2 Million Ticket to Aegis Capital for Unsuitable Recommendations

Aegis Capital Corp., former Aegis managing director Alan Z. Appelbaum, and former Aegis registered representative Paul F. Gallivan were charged on July 29 by the Securities and Exchange Commission (SEC) for making inappropriate recommendations of structured products to some of Aegis's retail clients.

According to the SEC's complaint against Appelbaum, he recommended highly complicated variable interest rate structured products (or "VRSPs") to seven different clients without their consent. In conjunction with his recommendation of the VRSPs, Appelbaum made materially false and misleading statements to consumers and engaged in improper trading.

Appelbaum is accused of violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder in the SEC's complaint.

Aegis was also the subject of a settled administrative proceeding by the SEC after it was determined that fourteen Aegis brokers had recommended VRSPs to 48 clients for whom the products were inappropriate given their financial circumstances and needs as indicated by their risk tolerance, investment goals, age, investment experience, liquidity requirements, and time horizon.

Aegis agreed to a censure, to cease and desist from further violations of the accused provisions, to pay disgorgement plus prejudgment interest of $220,865 and a civil penalty of $2.3 million without admitting or contesting the SEC's allegations.

As a result of Gallivan's improper recommendations of VRSPs to four customers as well as his materially false and misleading representations to customers regarding the VRSPs, the SEC finally launched settled administrative actions against him. According to the ruling, Gallivan broke the Securities Act's Sections 17(a)(2) and 17(a)(3).