The Securities and Exchange Commission last week announced a $1 million penalty and other enforcement action against one current and one former brokerage subsidiaries of E*Trade Financial Corporation for not adhering to rules on the sale of penny stocks.
The SEC said in a press release that the two subsidiaries, E*Trade Securities and E*Trade Capital Markets, failed in their roles as gatekeepers, selling billions of penny stock shares for customers over a four-year stretch while ignoring red flags that the offerings did not have the applicable exemption from registration provisions under securities law. The law typically requires all offers and sales of securities to be registered with the SEC unless they qualify for an exemption. Brokers are obligated to reasonably ensure an exemption does apply when facilitating an unregistered sales transaction for a customer.
