Wedbush Securities faces a $350,000 fine from the Financial Industry Regulatory Authority (Finra) and censure after a hacker illicitly transferred more than $6.6 million from a customer account.
Furthermore, the Los Angeles-based brokerage failed to implement an effective supervisory system between June 2020 and February 2021, neglecting to investigate red flags that could have exposed fraudulent transfers, according to the settlement. The breach involved the approval of four fraudulent wire transfer requests orchestrated by a hacker who gained access to an email account belonging to a registered representative at a “correspondent” firm affiliated with Wedbush. The funds were wired to third parties in foreign countries.
Wedbush’s response to the cybersecurity incident came under scrutiny, as the firm signed off on the transfers “after only sending questions to the hacker,” violating cybersecurity protocols. The breach prompted revisions to Wedbush’s written supervisory procedures in February 2021, requiring contact with a “recognized person” using a known telephone number at the correspondent firm before approving wires exceeding a specified amount.
Although Wedbush did not admit or deny the allegations, it accepted the penalties. The brokerage, with around 530 registered representatives across approximately 70 branch offices, violated Finra Rule 3110, emphasizing the need for brokerages to establish and maintain supervisory systems ensuring compliance with securities laws. Additionally, Wedbush breached Finra’s Rule 2010, which mandates firms to “observe high standards of commercial honor and just and equitable principles of trade”.
This isn’t the first regulatory action against Wedbush; Finra fined the brokerage $975,000 in January for inadequate trade monitoring and imposed an $850,000 fine in November 2022 for allegedly sending inaccurate account statements to approximately 610 customers regarding municipal bonds’ interest payments. The Securities and Exchange Commission labeled Wedbush a “recidivist” broker-dealer in 2018, accusing it of failing to supervise a broker involved in a pump-and-dump scheme targeting retail investors. Earlier that year, both Finra and the SEC ordered Wedbush to pay $2.5 million over allegations of net capital and customer-protection violations.