Ascendiant Capital Markets LLC is a broker-dealer headquartered in Irvine California who has been censured and fined $60,000.00 by Financial Industry Regulatory Authority (FINRA) according to a FINRA Office of Hearing Officers Order Accepting Offer of Settlement containing findings that the firm (1) engaged in securities fraud, (2) charged prices that were excessive and unreasonable, (3) failed to supervise markups and prices charged by its staff, and (4) failed to establish proper supervision of markups on principal basis stock transactions. Department of Enforcement v. Ascendiant Capital Markets LLC, Disciplinary Proceeding No. 2014038989201 (Mar. 15, 2018).
According to the Order, unreasonable and unfair prices had been charged by Ascendiant Capital Markets between April 30, 2012 and September 11, 2012, in which the firm’s markups were undisclosed and fraudulently excessive. Evidently, eleven sales of stock had been placed from Ascendiant Capital Markets’ proprietary investment accounts, where two of those stock sales contained markups of one hundred five percent and one hundred twenty-three percent over the prices for shares of stock at the time. Ascendiant Capital Markets reportedly charged fifty nine percent markups on average – nearly six times as high as the point in which markups raise assumptions about fraud.
The Order stated that if the customer had been able to purchase stocks at a five percent markup level, the customer would have paid approximately $13,000.00 in total for markups on all of the eleven transactions. Evidently; however, the customer was charged $153,000.00 in total markups. FINRA Office of Hearing Officers concluded that the customer was overcharged on the stock purchases by $140,000.00.
The Order additionally stated that the over-the-counter equities Ascendiant Capital Markets which sold to the customer at undisclosed and excessive prices had consisted of shares in Assured Pharmacy, Inc. (APHY) and Digital Development Group Corp (DIDG). Apparently, Digital Development Group Corp. had no business operations nor revenues, and was labeled as a mineral rights company in the pre-exploration phase. Assured Pharmacy, Inc. reportedly had experienced losses over consecutive years, and was labeled as a pharmacy company specializing in providing prescriptions for pain medications.
The Order revealed that Ascendiant Capital Markets ultimately became market makers for APHY and DIDG and knew about prices that the stocks had been transacting at. Consequently, FINRA concluded that Ascendiant Capital Markets was knowledgeable about the fact that it charged the customer unfair, unreasonable and excessive prices for the stock purchases. In the case of nine of the stock sales, FINRA noted that the firm not only knew that it was charging excessive prices, but that it did so in a fraudulent manner.
The Order stated that Ascendiant Capital Markets’ fraudulent conduct concerning pricing and markups was violative of Securities Act of 1934 Section 10(b), Securities Exchange Commission (SEC) Rule 10b-5, and FINRA Rules 2020 and 2010. Moreover, FINRA found that the shares of APHY and DIDG had been sold by Ascendiant Capital Markets at unreasonable and unfair prices in violation of FINRA Rule 2010 and National Association of Securities Dealers (NASD) IM 2440-1 and Rule 2440.
Further, the Order stated that Ascendiant Capital Markets failed to supervise the registered representative assigned to the customer’s account subject of excessive markups and stock prices. Consequently, FINRA found the firm’s conduct violative of FINRA Rule 2010 and NASD Rule 3010. Additionally, FINRA concluded that Ascendiant Capital Markets neglected to set forth reasonable supervisory procedures and systems concerning markups and prices charged to customers for trades effected on a principal basis; conduct violative of FINRA Rule 2010 and NASD Rule 3010.
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