Western International Securities (Western), a registered broker-dealer, on July 29 settled all charges brought against it in the first litigated enforcement action filed in federal district court by the U.S. Securities and Exchange Commission (SEC) alleging violations of Regulation Best Interest (Reg BI), 17 C.F.R. §240.15l-1.1 Pursuant to a consent order filed in the U.S. District Court for the Central District of California in SEC v. Western International Securities, Western agreed to an injunction, disgorgement of $34,468, prejudgment interest of $2,000, and a civil penalty of $160,000.2 Five of Western’s registered representatives also agreed to injunctions, disgorgement and prejudgment interest between $5,808 and $31,699 and a civil penalty of $12,500 each.
Separately, the SEC settled an administrative proceeding against Western involving an additional violation of Reg BI based on allegations of improper excessive trading on July 30. Pursuant to the settled order, Western agreed to cease and desist its violative conduct, a censure and a civil penalty of $140,000.3
While the recent settlements put an end to the SEC’s first litigated Reg BI enforcement action, federal court actions to enforce Reg BI may be just beginning. As noted in our prior client alert, Reg BI provides a tool for the SEC to charge broker-dealers related to securities recommendations to retail clients. Given the U.S. Supreme Court’s recent decision in SEC v. Jarkesy, the SEC’s Reg BI enforcement cases are likely headed to federal court. Although the monetary penalties against Western were relatively modest in comparison to the fanfare that accompanied the filings, federal court actions typically involve injunctive relief, which may have serious implications for industry participants.
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1 SEC v. Western International Securities, Case No. 2:22-cv-04119-WLH-JCx (C.D.C.A. July 29, 2024).
3 In the Matter of Western International Securities, Administrative Proceeding File No. 3-21986 (July 30, 2024).
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