Terry L. Haggerty, of Kenosha, Wisconsin, president and chief executive officer of Penvest Securities, Inc., was permanently barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity after consenting to findings that he engaged in securities fraud; and failed to supervise his and his firm’s trading conduct to prevent fraudulent trading activity. Letter of Acceptance, Waiver and Consent, No. 20120315955-01 (May 10, 2016).
According to the AWC, in early 2008, Haggery began trading in Pacific Sands, Inc. (PFSD), which was a penny stock that was traded through the over-the-counter markets. Apparently, he also started trading PFSD through discretionary trading in his firms’ customer accounts. The AWC stated that from January 1, 2010 through March 2, 2012, Haggerty’s and his customers’ trading in PFSD accounted for roughly forty-three percent of PFSD’s trading volume. Apparently, the customers of the firm had purchased an estimated $7,500,000.00 more in PFSD than sold. Further, Haggerty’s accounts became fully concentrated in PFSD.
The AWC stated that Haggerty eventually started engaging in matched or pre-arranged trading in PFSD, and had marked opening and closing of the trades so as to increase PFSD’s stock value. Apparently, Haggerty sometimes made the arrangements to match trades for his own account, in addition to accounts of the firm’s customers. This eventually accounted for thirty-nine percent of PFDS’s reported trading volume, and an estimated eighty-nine percent of the trading activity that his firm engaged in regarding PFSD.
The AWC stated that Haggerty prompted one-hundred and two transactions to be executed in the stock within certain periods of time (e.g. first and last minute of trading days), and in effect, set PFSD’s opening and closing pricing, so that the future prices would be greater than prices associated with his former trades.
According to FINRA, by Haggerty’s use of match trades to mark closing, Haggerty had intentionally crafted a misleading and false purchase signal for the other market participants. The AWC stated that Haggerty would purchase stock from individuals that Haggerty believed were attempting to depress the price of PFSD’s price, in order to prevent PFSD decline.
The AWC also indicated that Haggerty would utilize matched trades so as to avoid having to sell the shares of PFSD in the open market. This apparently was another attempt to control the price of the stock declining. The AWC noted that Haggerty sold an estimated seventy-nine percent of the shares in match trades with other customers of PVST, rather than on the open market. FINRA found that Haggerty’s aforementioned conduct amounted to fraud in violation of Securities Exchange Act of 1934 Section 10(b), Rule 10b-5, as well as FINRA Rules 2020 and 2010.
The AWC further stated that Haggerty, as the chief executive and compliance officer of the firm, was responsible for creating and implementing supervisory practices and procedures to ensure his and his firm representatives’ compliance with securities regulations and laws. FINRA found that Haggerty’s supervisory protocols were inadequate, in that they did not allow for any review of Haggerty’s own trading, or even the trading taking place by his customers. The AWC noted supervisory protocol was inadequate to detect and prevent unauthorized discretionary trading and fraudulent or manipulative trading activity. Haggerty reportedly never leaned on his second principal in order to ensure reviews of trading were conducted, and never provided such individual with access to the information utilized to perform compliance tasks. FINRA found that Haggerty’s supervisory failures were violative of FINRA Rule 3010 and NASD Rule 3010.
Public disclosure records reveal that Haggerty has been subject to ten disclosure incidents, four of which involve customer disputes. On March 15, 1982, Haggerty settled a customer dispute for $20,000.00 after a client alleged unauthorized trading. On March 31, 1987, a customer received an award of $8,000.00 after alleging Haggerty engaged in unsuitable and unauthorized trading, and breached his fiduciary duties. On August 15, 1989, Haggerty settled a customer dispute for $23,000.00 after being alleged to have engaged in churning and unsuitable recommendations.
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