scales of justice

U.S. securities regulators have settled with Canaccord Genuity LLC over allegations that the firm failed to meet its gatekeeping responsibilities by not properly scrutinizing the financials of thinly traded stocks.

The U.S. Securities and Exchange Commission (SEC) settled with the U.S. subsidiary of Canaccord Genuity, which consented to an order that it cease and desist from committing violations. The SEC censured the firm and levied a US$250,000 penalty.

The firm settled the case without admitting or denying the allegations.

The SEC’s order alleged that “Canaccord published quotes and made markets in dozens of over-the-counter (OTC) securities without performing the review which requires that broker-dealers have a reasonable basis for believing the prospectus and other information made available by the issuer of the securities was accurate.”

The regulator says that the firm tasked a compliance associate with carrying out these reviews, but that they weren’t adequately trained, and that the reviews were deficient as a result.

“Canaccord has since revised and improved its policies and procedures [in this area],” the SEC said.

“[Securities rules] impose important responsibilities on broker-dealers to minimize the risk of fraud in the securities they sell to customers,” said Daniel Michael, chief of the SEC’s complex financial instruments unit.

“By rubber stamping certifications that it had done its homework on the securities in which it made markets, Canaccord failed to perform this critical gatekeeping function,” he added.