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Securities Regulation Keyed to Coffee
Securities and Exchange Commission v. First Jersey Securities, Inc.
Facts
A discount broker-dealer, First Jersey Securities (First Jersey), sold securities via 1,200 representatives, a majority of which had no experience selling securities. The sales were a discount broker-dealer, sold securities through 1,200 representatives, most of whom had no prior securities sales experience. Its sales were made by cold calling prospective clients. The branch manager would provide the reps with the security that First Jersey was suggesting to investors, this took place during the fourth week of each month. At that time, the representatives were provided a scripted sales pitch, and sometimes the sales people were given reports concerning the suggested security, although they were not privy to the related risks.Usually First Jersey would have a client purchase a security and then have its representative suggest the client resell that security back to First Jersey, allowing First Jersey to split the units and resell them at considerably exaggerated prices. The First Jersey chief executive officer, president and sole shareholder wasBrennan.Purporting violations of § 17(a), § 10{b), and Rule 10b-5 (due to First Jersey’s practices constituting unlawful markups and fraud, the SEC initiated suit. First Jersey and Brennan were held jointly and severally liable for the violations by the district court and it was decided that Brennan was a “controlling person” for § 20 of the Securities Exchange Act of 1934 purposes. A permanent injunction was issued by the court, prohibiting defendants from additional violations, the disgorgement of $22,288,099 was ordered plus$52,689,894, in prejudgment interest, and appointed a special agent to decide if more violations had been discovered. Brennan and First Jersey appealed.
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