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SEC fines Wedbush Securities $1M for violating customer protection rule

The SEC has initiated cease-and-desist proceedings against Wedbush Securities Inc. for violating its customer protection rule and ordered the company to pay a civil money penalty of $1 million in addition to disgorgement of $275,851 and prejudgment interest of $28,346.

The customer protection rule, or Exchange Act Rule 15c3-3, requires brokers/dealers to safeguard both the cash and securities of their customers so that customer assets can be promptly returned if the company fails.

The SEC has censured the company after determining that between September 2014 and January 2015, Wedbush Securities' weekly Rule 15c3-3 calculations included a significant error resulting in weekly reserve account deficiencies ranging from about $10 million to $193 million out of a total reserve account requirement that ranged between $1.5 billion and $1.7 billion. When the error was uncovered, Wedbush Securities was required to immediately deposit an additional $133 million into its reserve account, which created a significant liquidity challenge for the company.

The order further stated that Wedbush Securities' failure to properly fund its reserve account also caused it to violate certain sections of the Securities Exchange Act.

Wedbush Securities has submitted an offer of settlement, which the SEC has determined to accept.