Brokers, Enforcement, Investors

SEC Charges Unregistered Brokers that Facilitated more than $1.2 Billion in Primarily Penny Stock Trades

Nov. 17, 2022 — The Securities and Exchange Commission today charged Jeffrey K. Galvani, Stuart A. Jeffery, and two New York-based entities they controlled with operating as unregistered broker-dealers that facilitated more than $1.2 billion of securities trading, primarily in penny stocks.

The SEC’s complaint alleges that Galvani and Jeffery – both registered brokers at a registered broker-dealer unconnected with this case – created GEL Direct Trust, which they managed through its trustee, GEL Direct, LLC. The GEL entities were not registered with the SEC as broker-dealers. Nonetheless, from 2019 through at least May 2022, Galvani and Jeffery, acting through the GEL entities, provided brokerage services to approximately 60 customers involving at least 19,000 securities trades, primarily in penny stocks. The brokerage services they allegedly provided included taking possession of customer securities, directing trades to executing brokers, facilitating trade settlements, and disbursing trading proceeds to customers. In return for these services, the defendants allegedly received at least $12 million in transaction-based and other compensation.

“Broker-dealer registration protects investors and our markets. It is not optional,” said David L. Peavler, Director of the SEC’s Fort Worth Regional Office. “As securities industry professionals, Galvani and Jeffery knew the rules, but we allege they didn’t follow them.”

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges Galvani, Jeffery, GEL Direct Trust, and GEL Direct, LLC with violating the broker-dealer registration requirement of Section 15(a) of the Securities Exchange Act of 1934 and charges Galvani and Jeffery as “control persons” of the GEL entities under Section 20(a) of the Exchange Act. The SEC seeks permanent injunctions, disgorgement, prejudgment interest, civil penalties, and penny stock bars against all defendants.

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The Securities Lawyer