SEC charges chief compliance officer in trading scheme

Those named in the SEC complaint are Jonah Engler, who indirectly owned and controlled the then-registered brokerage firm, Global Arena Capital (Global); Barbara Desiderio, Global’s president, chief compliance officer, and supervisor; and Joshua Turney and Hector Perez, both registered representatives at Global. According to the SEC complaint, these individuals “conducted a fraudulent unauthorized trading scheme involving approximately 360 customer accounts during a period of more than two months, during a time when Engler and Desiderio suspected their firm would soon be forced to shut down.”

This unauthorized trading allegedly generated over $2.4 million in unlawful markups, markdowns, and commissions for their firm and resulted in over $4 million in net losses for their customers. The complaint alleges that Engler orchestrated the scheme while Turney and Perez carried it out with Desiderio’s assistance.

Scheme details

According to the SEC, Desiderio, from October 2013 until she resigned from the firm on June 30, 2015, had formal responsibility for supervising the Global branch where the defendants worked. Additionally, from August 2014 through May 12, 2015, she served as the firm’s chief compliance officer.

During the relevant period, Desiderio held responsibility for responding to regulatory inquiries and updating the Financial Industry Regulatory Authority’s (FINRA) Central Registration Depository, the database for required information about registered representatives and firms. Prior to the relevant period, Desiderio had also served as a branch manager at Global from Oct. 24, 2013 to Aug. 10, 2014.

In March 2015, Engler and Desiderio learned that FINRA, a self-regulatory organization, would not approve their application to transfer ownership of Global to Engler’s holding company. Engler, based on increasing scrutiny from FINRA into the firm’s sales practices, “suspected he would soon be forced to close the firm,” according to the SEC complaint. “He decided to leave the securities business and close it down himself.”

Over Global’s remaining time of operation—approximately April 1 through June 4, 2015—Engler directed Turney and Perez to engage in unauthorized trading (ordering trades for non-discretionary customer accounts) to generate commission revenue. “At Engler’s direction, and with Desiderio’s knowledge, Turney and Perez attempted to cover up their unauthorized trading by making fake calls to their customers that included, for example, leaving long voicemails with their customers or placing the call on mute if the customer answered the phone, in an attempt to falsely suggest that the customer had authorized the trading,” the SEC complaint states.

“Turney and Perez, at Engler’s direction and with Desiderio’s knowing assistance, executed approximately 4,500 unauthorized trades in approximately 360 customer accounts,” the complaint continued. Of the $2.4 million in unlawful commissions generated from the unauthorized trading, Engler and companies he controlled received approximately $1.1 million; Turney received over $280,000; Perez received over $135,000; and Desiderio received over $390,000.

The SEC’s complaint, filed in federal district court in Brooklyn, charges Engler, Turney, and Perez with violating the anti-fraud provisions of Section 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c). Desiderio has been charged with aiding and abetting Engler’s, Turney’s, and Perez’s violations. The SEC’s complaint further seeks disgorgement of ill-gotten gains plus prejudgment interest, penalties, and injunctive relief.