In re KEVIN MCKENNA and ROBERT

 
 
 
UNITED STATES OF AMERICA 
Before the 
SECURITIES AND EXCHANGE COMMISSION 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 82957/ March 28, 2018 
ADMINISTRATIVE PROCEEDING 
File No. 3-18413 
 
In the Matter of 
KEVIN MCKENNA and ROBERT 
EIDE 
Respondents. 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS 
PURSUANT TO SECTIONS 15(b) AND 21C 
OF THE SECURITIES EXCHANGE ACT OF 
1934, SECTION 203(f) OF THE 
INVESTMENT ADVISERS ACT OF 1940, 
AND SECTION 9(b) OF THE INVESTMENT 
COMPANY ACT OF 1940, MAKING 
FINDINGS, AND IMPOSING REMEDIAL 
SANCTIONS AND A CEASE-AND-DESIST 
ORDER 
 
I. 
The Securities and Exchange Commission (“Commission”) deems it appropriate that 
public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to 
Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”), Section 
203(f) of the Investment Advisers Act of 1940 (“Advisers Act”), and Section 9(b) of the 
Investment Company Act of 1940 (“Investment Company Act”) against Kevin McKenna and 
Robert Eide (collectively “Respondents”). 
II. 
 In anticipation of the institution of these proceedings, Respondents have submitted Offers 
of Settlement (“Offers”), which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the 
findings herein, except as to the Commission’s jurisdiction over them and the subject matter of 
these proceedings, which are admitted, and except as provided in Section IV.E. herein, 
Respondents consent to the entry of this Order Instituting Administrative and Cease-and-Desist 
Proceedings Pursuant to Sections 15(b) and 21C of the Exchange Act of 1934, Section 203(f) of 
the Investment Advisers Act of 1940, and Section 9(b) of the Investment Company Act of 1940, 
Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as 
set forth below. 

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III. 
On the basis of this Order and Respondents’ Offer, the Commission finds
1
 
that: 
SUMMARY 
This matter involves the conduct of two senior persons in connection with anti-money 
laundering (“AML”) compliance failures at Aegis Capital Corporation (“Aegis” or “the firm”), a 
registered broker-dealer:  Kevin McKenna (“McKenna”) who served as the firm’s AML 
Compliance Officer (“AML CO”) from June 2012 to mid-2013 and Robert Eide (“Eide”), who 
serves as the firm’s Chief Executive Officer (“CEO”).   
From at least late 2012 through early 2014, Aegis failed to file Suspicious Activity 
Reports (“SARs”) on hundreds of transactions when it knew, suspected, or had reason to suspect 
that the transactions involved the use of the broker-dealer to facilitate fraudulent activity or had 
no business or apparent lawful purpose.  Many of the transactions involved red flags of potential 
market manipulation, including high trading volume in companies with little or no business 
activity during a time of simultaneous promotional activity.  Aegis did not file SARs on these 
transactions even when it specifically identified AML red flags implicated by these transactions 
in its written supervisory procedures.   
Under Aegis’ written supervisory procedures, the firm’s AML COs (McKenna and then 
another former AML CO (“Former AML CO”)) were responsible for filing SARs on the firm’s 
behalf.  Throughout the relevant period, McKenna and the Former AML CO became aware of 
transactions that exhibited numerous AML red flags through alerts from Aegis’ clearing firms 
(hereinafter defined as “AML Alerts”).  McKenna and the Former AML CO were the primary 
points of contact for the clearing firms as it related to suspicious activity.  Although the AML 
Alerts raised many red flags – including many red flags listed in Aegis’ written supervisory 
procedures as examples of suspicious activities – McKenna and the Former AML CO did not file 
SARs on Aegis’ behalf regarding these transactions and they did not create written analyses or 
compile other records indicating that they considered filing SARs.   
Throughout the relevant period, Eide was alerted to at least some of these suspicious low-
priced securities transactions as well, but he failed to take adequate steps to ensure that Aegis 
was filing the requisite SARs.  For example, in January 2013, Aegis’ clearing firm began 
identifying red flags in Aegis’ low-priced securities business and communicated them to Aegis 
personnel through the AML Alerts.  Then, in a January 2014 letter directly addressed to Eide, the 
Commission’s Office of Compliance Inspections and Examinations (“OCIE”) identified serious 
deficiencies in Aegis’ SAR-filing practices related to its low-priced securities business.  
Although subsequent suspicious transactions occurred at Aegis, the firm did not file SARs 
regarding those transactions.   
                                                 
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 The findings herein are made pursuant to Respondents’ Offers and are not binding on any other person or 
entity in this or any other proceeding.
 

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As a result of the foregoing, McKenna willfully
2
 aided and abetted and caused Aegis’ 
violations of Exchange Act Section 17(a) and Rule 17a-8 thereunder and Eide was a cause of 
Aegis’ violations. 
RESPONDENTS 
 Kevin McKenna, 61.  McKenna served as Aegis’ AML CO from June 2012 to June 
2013. 
 Robert Eide, 65.  Eide is the founder and CEO of Aegis Capital Corporation, and the 
100% owner of Aegis Capital Holding Corporation, which is the 100% owner of Aegis Capital 
Corporation. 
OTHER RELEVANT ENTITIES 
 Aegis is a dually-registered investment adviser and broker-dealer with multiple branches 
and is headquartered in New York, NY.  For its fiscal year 2014, Aegis had revenues of 
approximately $123 million and, for its fiscal year 2015, revenues of approximately $98 million.  
During those fiscal years, Aegis had revenues of approximately $250,000 and $270,000 from its 
low-priced securities business.  Aegis’ business consists of investment banking, venture capital, 
and debt market services as well as full-service retail and institutional advisory and brokerage 
services.   
FACTS 
A. Aegis’ Low Priced Securities Business 
1. During the relevant period, Aegis had various brokerage customers who transacted in 
low-priced securities.  Several of these customers did so through Delivery Versus 
Payment/Receive Versus Payment accounts (“DVP/RVP”).  In DVP/RVP accounts held 
at Aegis, the customer deposited their shares at another firm in a custodial account, and 
the sale transactions were effected through Aegis.  During the relevant period, Aegis had 
relationships with various clearing firms that assisted in effecting low-priced securities 
transactions. 
2. Aegis had customers at their branch offices who transacted in low-priced securities.  
Several of these customers were foreign financial institutions that effected transactions on 
behalf of their underlying customers, all of whom were unknown to Aegis. 
                                                 
2
 
 A willful violation of the securities laws means merely “that the person charged with the duty knows what 
he is doing.” Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 
(D.C. Cir. 1949)). 

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B. Aegis’ Anti-Money Laundering Compliance Program – Written Supervisory Procedures 
Concerning SARs and Specific Red Flags Related to Market Manipulations 
3. During the relevant period, Aegis had specific written supervisory procedures concerning 
compliance with its AML responsibilities.  Aegis’ written supervisory procedures 
expressly identified Aegis’ AML CO as the individual responsible for deciding whether 
Aegis needed to file a SAR.  Moreover, Aegis’ written supervisory procedures stated that 
all Aegis employees were obligated to “promptly report to the [AML CO] any known or 
suspected violations of anti-money laundering policies as well as other suspected 
violations or crimes.” 
4. Pursuant to 31 C.F.R. § 1023.320 (the “SAR Rule”), Aegis was required to file SARs for 
transactions by, at or through the firm that involved or aggregated at least $5,000 if Aegis 
knew, suspected, or had reason to suspect that, among other things, the transactions 
involved funds derived from illegal activity, had no business or apparent lawful purpose, 
or involved using Aegis to facilitate criminal activity.  Aegis explicitly cited the SAR 
Rule in its written supervisory procedures. 
5. Aegis, in its written supervisory procedures, expressly identified certain trading in low-
priced securities as suspicious activity that could warrant a SAR filing:   
Aegis will file [SARs] for transactions that may be indicative of 
money laundering activity.  Suspicious activities include a wide 
range of questionable activities; examples include trading that 
constitutes a substantial portion of all trading for the day in a 
particular security . . . [and] heavy trading in low-priced securities.  
 
(emphasis added.) 
 
6. Aegis, in its written supervisory procedures, also expressly identified specific AML red 
flags associated with low-priced securities transactions of which its employees should be 
aware.  These specific AML red flags – many of which were also described as red flags 
in industry notices issued by FINRA (e.g., FINRA Notice to Members 09-05 and NASD 
Notice to Members 02-21) – included the following:   
i. There is a sudden spike in investor demand for, coupled with a rising price in, a 
thinly-traded or low-priced security; 
ii. The issuer has been through several recent name changes, business combinations 
or recapitalizations, or the company’s officers are also officers of numerous 
similar companies;  
iii. The issuer’s SEC filings are not current, are incomplete, or nonexistent;  
iv. The customer appears to be acting as an agent for an undisclosed principal, but 
declines or is reluctant, without legitimate commercial reasons, to provide 
information or is otherwise evasive regarding that person or entity; 

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v. The customer’s account has wire transfers that have no apparent business purpose 
to or from a country identified as a money laundering risk or a bank secrecy 
haven; and 
vi. The customer, for no apparent reason or in conjunction with other “red flags,” 
engages in transactions involving certain types of securities, such as penny stocks 
. . . which although legitimate, have been used in connection with fraudulent 
schemes and money laundering activity. 
C. McKenna and the Former AML CO Failed to File SARs on Aegis’ Behalf Concerning 
Low-Priced Securities Transactions  
7. McKenna and the Former AML CO – throughout the relevant period – failed to file 
SARs on Aegis’ behalf concerning low-priced securities transactions, and they did not 
create written analyses or compile other records indicating that they considered filing 
SARs.    
8. McKenna and the Former AML CO failed to file SARs on Aegis’ behalf despite the fact 
that numerous low-priced securities transactions effected through the firm exhibited 
several of the AML red flags that Aegis specifically identified in its written supervisory 
procedures. 
9. In particular, McKenna and the Former AML CO failed to file SARs on transactions in 
which Aegis’ customers were:  
(i) selling large quantities of low-priced securities that comprised a significant 
percentage of the issuers’ daily trading volume and outstanding float;  
(ii) trading shares of issuers who had changed names and business lines;  
(iii) selling substantial shares of low-priced securities during periods of spikes in 
price and volume of the issuers’ securities and during paid promotional 
campaigns; and/or 
(iv) trading in shares of issuers’ that had little or no market activity until the 
promotions began. 
10. McKenna and the Former AML CO failed to file SARs on Aegis’ behalf on low-priced 
securities transactions even when they received AML Alerts from its clearing firm about 
such suspicious transactions.   
11. These AML Alerts were sent from a clearing firm that Aegis hired in July 2012 and 
transitioned its clearing business to by December 2012 (the “New Clearing Firm”).   
12. Beginning in January 2013, the New Clearing Firm identified AML red flags in Aegis’ 
low-priced securities business.  However, despite receiving these AML Alerts, McKenna 
and the Former AML CO failed to file SARs on Aegis’ behalf, and they did not create 
written analyses or compile other records indicating that they considered filing SARs.  

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Nor did they follow up with others to learn why firm employees or Aegis’ trade 
surveillance system had not brought the suspicious transactions identified in the AML 
Alerts to their attention. 
13. Had McKenna and the Former AML CO followed up to learn why suspicious 
transactions were not being brought to their attention through the firm’s own internal 
systems, they would have learned that the firm’s trade surveillance system did not 
analyze DVP/RVP transactions for suspicious activity.  Rather, they would have learned 
that these transactions were simply batch approved by the applicable Aegis personnel.   
D. Illustrative Examples of Transactions in which McKenna or the Former AML CO Failed 
to File SARs on Aegis’ Behalf  
i. Customer A 
14. Between October 17 and December 27, 2012, an Aegis customer – Customer A – sold 
approximately 2.1 million shares of Issuer A, which traded on OTC Link (previously 
“Pink Sheets”) operated by OTC Markets Group Inc. (“OTC Link”).  Customer A held a 
DVP/RVP account at Aegis and is a private Swiss bank that traded significant volumes of 
low-priced securities through an omnibus arrangement with Aegis on behalf of the Swiss 
bank’s underlying clients who were unknown to Aegis. 
15. At the same time Customer A was selling shares of Issuer A, a stock promotion touting 
the company’s prospects was underway.  Coinciding with the promotional campaign, 
Issuer A’s share price fluctuated from a low of $0.51 to a high of $0.93 on average daily 
volume of 558,792 shares.  In the two months prior to October 17, 2012, no shares of 
Issuer A traded at all.  Thus, Customer A’s trading in Issuer A occurred during a period 
of a sudden spike in price and volume – which were specific AML red flags identified in 
Aegis’ written supervisory procedures. 
16. Prior to Customer A’s trading in Issuer A, Issuer A had undergone several name changes 
– again a specific AML red flag identified in Aegis’ written supervisory procedures.  
Moreover, contrary to the rosy picture of Issuer A painted by the above described 
promotional campaign, Issuer A’s Form 10-Q for the period ending September 30, 2012 
reported that Issuer A had no revenues, a net loss of $143,345, and a “going concern” 
statement from its management.   
17. Despite these red flags associated with the trading by Customer A, McKenna did not file 
a SAR on Aegis’ behalf.    
18. From December 2012 to March 2013, Customer A again traded suspiciously in a low-
priced security, this time in Issuer B – another security traded on OTC Link.   
19. Indeed, during that period, Customer A sold 8.2 million shares of Issuer B for proceeds of 
approximately $2.4 million.  The shares it sold accounted for more than 8.8% of Issuer 
B’s outstanding shares.  This trading coincided with a promotional campaign during 
which Issuer B’s share price climbed from a low of approximately $0.40 to a high of 

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approximately $0.96, before falling again to approximately $0.07, on average daily 
trading volume of approximately 1.5 million shares.  The only trading in the six months 
prior to the beginning of the promotional campaign occurred on just one day and 
involved only 10,000 shares.   
20. In addition to the suspicious trading noted above, there were other indicia that Issuer B 
likely was the subject of market manipulation.  For example, Issuer B reported in 2013 
that it was a world-class graphite company, yet two years earlier it had been a Malaysian 
publishing company that operated under a different name.  Recent changes in an issuer’s 
name and business was one of the specific AML red flags identified in Aegis’ written 
supervisory procedures. 
21. On April 4, 2013, the New Clearing Firm sent an AML Alert to McKenna and other 
Aegis personnel concerning Customer A’s trading in Issuer B, which was the first time 
McKenna became aware of these transactions.  In the April 4, 2013 AML Alert, the New 
Clearing Firm noted that Customer A had received over 9 million shares of Issuer B into 
its account between December 12, 2012 and March 4, 2013, and asked how and when 
Customer A acquired the shares and whether there was a registration statement in effect 
for them.   
22. Prior to this April 4, 2013 AML Alert, the New Clearing Firm had expressed concerns to 
McKenna, Eide, and other Aegis personnel about Aegis’ low-priced securities practices.  
In fact, in March 2013, the New Clearing Firm implemented specific restrictions on 
Aegis’ low-priced securities business.  These restrictions included a requirement that, 
before Aegis customers could sell low-priced securities that had been physically 
deposited at the firm, either the AML CO, the CEO, or the firm’s COO had to sign a red 
flag identifiers form indicating that the signatory had reviewed the proposed transactions 
for red flags commonly associated with market manipulation in low-priced securities.  
23. The New Clearing Firm continued to communicate with McKenna and other Aegis 
personnel with additional questions concerning Customer A’s trading in Issuer B. 
24. For example, on April 17, 2013, the New Clearing Firm emailed McKenna and other 
Aegis personnel citing three websites on which it found evidence of Issuer B promotions 
and made three requests:  (i) describe the due diligence completed before executing 
Customer A’s transactions; (ii) describe how the relationship with Customer A was 
established; and (iii) identify Customer A’s underlying clients. 
25. Despite the AML Alert and questions from the New Clearing Firm, Customer A 
continued to trade low-priced securities at Aegis.  Accordingly, on May 20, 2013, the 
New Clearing Firm wrote to McKenna about Customer A:   
As you know AML is really tweaked on this [Customer A] account.  
Because the account is continuing to trade in multiple securities 
which have been subject to regulatory inquiries, we need a concrete 
plan to address this situation as soon as possible.  In absence of 
receiving a mutually agreeable plan, AML going [sic] to be blocking 

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transactions in the account beginning Tuesday prior to market 
opening. 
 
26. Eide requested extensions from the New Clearing Firm so that Customer A could 
continue to trade while Aegis attempted to transition Customer A’s accounts to another 
broker-dealer.  Ultimately, Aegis closed Customer A’s accounts on September 13, 2013, 
at least in part because of concerns regarding the low-priced securities that were traded in 
them. 
27. Despite these red flags associated with the trading by Customer A and Aegis’ closure of 
the account due to the presence of suspicious activity, McKenna did not file a SAR on 
Aegis’ behalf and did not create written analyses or compile other records indicating that 
he even considered filing a SAR.  The fact that Customer A’s account was a DVP/RVP 
account did not relieve Aegis of its SAR filing obligations with respect to that account. 
ii. Customer B 
28. Customer B is a British Virgin Islands company based in China that offers consulting and 
advisory services. 
29. In an approximately one month period beginning in April 2013, Customer B sold 
approximately 200,000 shares of Issuer C through Aegis for proceeds of $2.3 million, or 
over $10 per share.  Issuer C was listed on NASDAQ. 
30. Just six months prior to these sales, Issuer C’s share price was $0.45 per share.  And, a 
month prior to these sales, Issuer C’s share price was approximately $5 per share. 
31. On April 25, 2013, Customer B sent a request to wire approximately $600,000 of the $2.3 
million in proceeds to its own bank account in Hong Kong. 
32. Regarding this request, an Aegis compliance employee wrote to McKenna, Eide, and the 
firm’s COO to explain that the funds included in the transfer request were proceeds from 
Customer B’s trading and wrote “[Issuer C’s] share price has risen quite a bit in the past 6 
months.  I’d prefer a member of senior management authorize and approve this wire.” 
33. After the COO asked whether Issuer C’s shares were restricted when they arrived at 
Aegis, the compliance employee replied to McKenna, Eide, and the firm’s COO “[c]lean 
shares but the sudden spike in price is a concern.”  
34. Notwithstanding the red flags the compliance employee raised, McKenna did not file a 
SAR on Aegis’ behalf concerning either the suspicious trading or the substantial proceeds 
wired offshore and did not create written analyses or compile other records indicating 
that he considered filing SARs.   
35. After the initial wire was sent to Customer B’s Hong Kong account in late April 2013, 
Customer B made requests to send two more wires totaling the remainder of the proceeds 
from the trading.  Again, McKenna did not file a SAR on Aegis’ behalf concerning the 

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substantial proceeds wired offshore and did not create written analyses or compile other 
records indicating that he even considered filing a SAR.       
iii. Customer C 
36. In early November 2013, the New Clearing Firm sent another AML Alert, this time 
involving a different customer, Customer C.  Customer C had a DVP/RVP account at 
Aegis.  By this time, the Former AML CO had replaced McKenna as the firm’s AML 
CO. 
37. On November 1, 2013, the New Clearing Firm sent the Former AML CO an AML Alert 
outlining Customer C’s suspicious trading in several low-priced securities, including 
Issuers D and E and noting that in approximately six months Customer C had sold 
approximately 1 billion shares of low-priced securities through Aegis (emphasis added).  
Both Issuers D and E were traded on OTC Link. 
38. In its AML Alert, the New Clearing Firm noted that Customer C, between September 17 
and October 31, 2013, had sold 31% of Issuer D’s outstanding shares and that the average 
daily trading volume had increased by approximately five fold during Customer C’s 
trading while the share price had dropped by approximately 90%.
 
 
39. Other evidence also indicates Issuer D may have been the subject of market 
manipulation.  In particular, Issuer D had experienced a rapid increase in the company’s 
stock price and volume that coincided with a promotional campaign that was inconsistent 
with the company’s financial performance as reflected in its SEC filings. 
40. With respect to Issuer E, the New Clearing Firm noted in its AML Alert that Issuer E had 
reported no revenues and that Customer C had sold over 60% of the company’s 
outstanding shares in two and a half months while the share price had dropped by 
approximately 50%. 
41. In addition to suspicious trading in Issuers D and E, the New Clearing Firm identified in 
the AML Alert sent to the Former AML CO similarly suspicious trading by Customer C 
in other low-priced securities including that Customer C – in one particular low-priced 
security – had sold more shares in three months than the issuer had outstanding. 
42. In the AML Alert, the New Clearing Firm requested a description of: (i) the due diligence 
performed on the customer; (ii) the due diligence performed on the securities Customer C 
liquidated in the account; and (iii) how Aegis was comfortable with the activity in the 
account.  
43. On November 5, 2013, the Former AML CO informed the New Clearing Firm that Aegis 
had reviewed Customer C’s account activity and its account opening paperwork and had 
decided to close the account, which it did, at least in part, because of the AML concerns 
outlined in the AML Alert.       
44. Despite these red flags associated with the trading by Customer C and closing the account 
due to the presence of suspicious activity, the Former AML CO did not file a SAR on 

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Aegis’ behalf.  Moreover, the Former AML CO did not create written analyses or 
compile other records indicating that he even considered filing a SAR.  The fact that 
Customer C’s account was a DVP/RVP account did not relieve Aegis of its SAR filing 
obligations with respect to that account. 
iv. Customer D 
45. Another Aegis customer – Customer D – engaged in suspicious low-priced securities 
transactions for which Aegis did not file a SAR.  Customer D was a foreign financial 
institution with a DVP/RVP account at the firm and traded on behalf of underlying 
customers who were unknown to Aegis. 
46. Over an approximately six-month period beginning in late May 2013, Customer D sold 
approximately 457,000 shares of Issuer F for proceeds of approximately $2.8 million.  
Issuer F traded on OTC Link.  Just prior to the trading – and coinciding with a 
promotional campaign – Issuer F’s share price climbed from $3.90 to $9.39 on 
substantially increased volume. 
47. Customer D was not the only Aegis customer who traded suspiciously in Issuer F.  
Starting approximately two months before Customer D’s trading, Customers A and E 
sold a substantial amount of Issuer F shares for substantial proceeds.  Customer E was yet 
another foreign financial institution with a DVP/RVP account at the firm and traded on 
behalf of underlying customers who were unknown to Aegis; it was incorporated in New 
Zealand and operated from Switzerland. 
48. In particular, Customer A sold approximately 638,000 shares of Issuer F for proceeds of 
approximately $3.7 million while Customer E sold approximately 494,000 shares of 
Issuer F for proceeds of approximately $3.3 million.  Thus, together Customers A and E 
sold over one million shares of Issuer F securities for proceeds of approximately $7 
million. 
49. Despite these red flags associated with the trading by Customer D and two other Aegis 
customers, McKenna did not file a SAR regarding the above trading on Aegis’ behalf.    
50. In early June 2013 – just a few weeks after Customer D began its trading in Issuer F – 
Customer D traded in another low-priced security transaction, this time Issuer G.  Issuer 
G also traded on OTC Link. 
51. Between June 11 and 17, 2013 and during a paid promotional campaign for Issuer G, 
Customer D sold approximately 340,000 shares of Issuer G for proceeds of 
approximately $248,000.   
52. Moreover, another Aegis customer, Customer F, traded suspiciously in Issuer G at the 
same time as Customer D did.  In particular, Customer F sold approximately 760,000 
shares of Issuer G through Aegis during the promotion for proceeds of approximately 
$840,000.  Customer F was yet another foreign financial institution with a DVP/RVP 

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account at the firm and traded on behalf of underlying customers who were unknown to 
Aegis. 
53. On December 2, 2013, while the Former AML CO was serving as the AML CO, the New 
Clearing Firm sent an AML Alert to the Former AML CO regarding Customer D’s 
trading in Issuer G, and wrote that the trading “exhibited characteristics commonly 
associated with a pump-and-dump scheme; including paid stock promotion, a significant 
increase in both price and trading volume, followed by a precipitous drop in price and 
volume.” 
54. In the AML Alert, the New Clearing Firm also noted that Issuer G had changed both its 
name and business line (to a medical device company from an auto parts manufacturer), 
had no revenue and minimal trading volume until the stock promotion began, and that 
Customer D’s trading was similar to the suspicious trading by two other Aegis customers 
that had prompted the New Clearing Firm to request that those accounts be closed earlier 
in the year. 
55. The Former AML CO ordered that Customer D’s account be closed and acknowledged in 
an email that the compliance department did “not have the bandwidth to monitor the 
account.”  Customer D’s accounts were ultimately closed, at least in part, because of the 
AML concerns associated with it.   
56. Despite these red flags associated with the trading by Customer D and at least one other 
Aegis customer in Issuer G as well as the closing of Customer D’s account due at least in 
part to concerns regarding low-priced securities transactions, the Former AML CO did 
not file a SAR on Aegis’ behalf.  Moreover, the Former AML CO did not create any 
written analyses or compile other documents indicating that he considered filing a SAR 
on Aegis’ behalf.  The fact that the above described accounts were DVP/RVP accounts 
did not relieve Aegis of its SAR filing obligations with respect to those accounts. 
v. November 18, 2013 DVP/RVP Update to Written Supervisory Procedures 
57. On November 18, 2013 – in response to the deficiencies identified by OCIE – the Former 
AML CO sent an email to all Aegis employees containing an update to Aegis’s written 
supervisory procedures that required low-priced securities transactions in DVP/RVP 
accounts to be subjected to the same due diligence as cash accounts when customers 
deposited physical securities. 
58. In particular, Aegis’ updated written supervisory procedures required Aegis’ DVP/RVP 
customers to submit Deposited Securities Request Questionnaires (“DSRQs”) for any 
low-priced securities it wished to trade and required Aegis to complete due diligence to 
identify red flags associated with the issuers of low-priced securities. 
59. DSRQs include, among other things, information about how the customer obtained a 
particular security, whether the customer is an affiliate of the issuer, and how many 
shares of the security the customer owns.  DSRQs had to be filled out by the customer 

12 
 
 
and approved by the registered representative and a member of Aegis’ management 
before any trading was to occur.   
vi. Customer G 
60. Notwithstanding this update to Aegis’ written supervisory procedures, however, at least 
one of Aegis’ DVP/RVP customers (Customer G) traded suspiciously in low-priced 
securities and did so before the required DSRQ process had been completed.  Customer 
G, a New York corporation, is a microcap hedge fund that held a DVP/RVP account at 
Aegis. 
61. Between February 10, 2014 and February 20, 2014, Customer G sold 705.9 million 
shares of Issuer H through Aegis for proceeds of approximately $1.24 million.  Issuer H 
traded on OTC Link. 
62. On February 19, 2014, the New Clearing Firm sent an AML Alert that the Former AML 
CO received explaining that it was going to block Customer G’s account at market close 
because, among other reasons, Customer G had already sold 200 million shares of Issuer 
H that day and 2.7 billion shares of low-priced securities since it opened its account.   
63. In addition to the suspicious trading, there were other indicia that Issuer H may have been 
the subject of market manipulation.  For example, Issuer H experienced a large increase 
in price and volume that coincided with a promotional campaign.  Moreover, the 
company’s name had changed several times before becoming Issuer H.   
64. The AML Alert was not limited to the suspicious Issuer H trades; it also described 
suspicious trading by Customer G in over 1.6 billion shares of the securities of ten 
additional microcap issuers.  
65. The New Clearing Firm subsequently asked for an explanation of: (i) the due diligence 
Aegis performed on the customer; (ii) the due diligence Aegis performed on the securities 
liquidated in the account; and (iii) how Aegis was comfortable with the activity.    
66. Even after Aegis received the AML Alert concerning Customer G’s trading, Customer G 
continued to trade in Issuer H.  Indeed, on February 19 and 20, 2014, Customer G sold an 
additional 120 million shares of Issuer H, trades that McKenna reviewed in his new role 
as branch manager.  
67. At the time of Customer G’s trading in February 2014, Aegis had already implemented 
its new DSRQ policy for trading in DVP/RVP accounts.  The DSRQ packet for Customer 
G’s trading in Issuer H, however, was not signed by any of the required Aegis personnel 
and, thus, Customer G should never have been allowed to liquidate any of its Issuer H 
shares through Aegis.  
68. Despite the significant trading by Customer G in Issuer H and the other red flags 
associated with the transactions, the Former AML CO did not file a SAR on Aegis’ 
behalf.  Moreover, the Former AML CO did not create written analyses or compile other 
records indicating the consideration of filing a SAR.  The fact that Customer G’s account 

13 
 
 
was a DVP/RVP account did not relieve Aegis of its SAR filing obligations with respect 
to that account. 
E. Eide Was A Cause of Aegis’ Violations  
69. Throughout the relevant period, Eide learned of some of the red flags associated with 
Aegis’ low-priced securities business described above but failed to take adequate steps to 
ensure that Aegis filed the SARs required by the SAR Rule.   
70. For example, Eide learned from the New Clearing Firm – in January 2013 – that it had 
identified red flags in Aegis’ low-priced securities business.   
71. After January 2013, Eide became aware of additional concerns regarding activity in 
Aegis’ low-priced securities business.  For example, in a January 31, 2014 letter 
addressed directly to Eide, OCIE identified significant deficiencies in Aegis’ SAR-filing 
practices including the fact that Aegis filed no SARs relating to its low-priced securities 
business despite indicia that certain stock sales may have been part of fraudulent “pump 
and dump” schemes.   
72. This letter was sent directly to Eide approximately twenty days prior to the AML Alert 
sent to Aegis’ compliance department detailing Customer G’s suspicious trading in Issuer 
H.  Notwithstanding the receipt of OCIE’s letter, however, Aegis filed no SAR 
concerning Customer G’s suspicious trading.    
73. Despite his awareness of AML red flags and deficiencies in Aegis’ SAR-filing practices, 
Eide failed to take adequate steps to ensure that Aegis filed the SARs required by the 
SAR Rule.  Eide did not, for example, follow up with McKenna or the Former AML CO 
to ensure that they were filing SARs on Aegis’ behalf.    
VIOLATIONS 
74. The Bank Secrecy Act (“BSA”), and implementing regulations promulgated by FinCEN, 
require that broker-dealers file SARs with FinCEN to report a transaction (or a pattern of 
transactions of which the transaction is a part) conducted or attempted by, at, or through 
the broker-dealer involving or aggregating to at least $5,000 that the broker-dealer 
knows, suspects, or has reason to suspect:  (1) involves funds derived from illegal activity 
or is conducted to disguise funds derived from illegal activities; (2) is designed to evade 
any requirement of the BSA; (3) has no business or apparent lawful purpose and the 
broker-dealer knows of no reasonable explanation for the transaction after examining the 
available facts; or (4) involves use of the broker-dealer to facilitate criminal activity.  31 
C.F.R. § 1023.320(a)(2). 
75. Exchange Act Rule 17a-8 requires broker-dealers to comply with the reporting, record-
keeping, and record retention requirements of the BSA.  The failure to file a SAR as 
required by the SAR Rule is a violation of Section 17(a) of the Exchange Act and Rule 
17a-8 thereunder. 

14 
 
 
76. By engaging in the conduct described above, Aegis violated Section 17(a) of the 
Exchange Act and Rule 17a-8 thereunder. 
77. By engaging in the conduct described above, McKenna willfully aided and abetted and 
caused Aegis’ violations of Section 17(a) of the Exchange Act and Rule 17a-8 
thereunder. 
78. By engaging in the conduct described above, Eide was a cause of Aegis’ violations of 
Section 17(a) of the Exchange Act and Rule 17a-8 thereunder. 
IV. 
 In view of the foregoing, the Commission deems it appropriate and in the public interest 
to impose the sanctions agreed to in Respondents’ Offers.  
 
 Accordingly, it is hereby ORDERED that: 
 
A. Pursuant to Exchange Act Section 15(b)(6) and Advisers Act Section 203(f), 
Respondent McKenna shall be, and hereby is, subject to the following limitations on his 
activities:   
 
(1) Respondent McKenna shall not serve or act as a chief compliance officer 
or otherwise serve in a compliance capacity that reports, directly or indirectly, to 
the chief compliance officer with any broker, dealer, investment adviser, 
municipal securities dealer, municipal advisor, transfer agent, or nationally 
recognized statistical rating organization; or as a designated anti-money 
laundering compliance person or otherwise serve in an anti-money laundering 
compliance capacity that reports, directly or indirectly, to the designated anti-
money laundering compliance person with any broker, dealer, investment adviser, 
municipal securities dealer, municipal advisor, transfer agent, or nationally 
recognized statistical rating organization.   
 
(2) Respondent McKenna may apply to act in such a compliance or anti-
money laundering compliance capacity after eighteen (18) months to the 
appropriate self-regulatory organization, or if there is none, to the Commission. 
 
 Any application to act in such a compliance or anti-money laundering compliance 
capacity will be subject to the applicable laws and regulations governing the reentry 
process, and permission to act in such a compliance or anti-money laundering compliance 
capacity may be conditioned upon a number of factors, including, but not limited to, the 
satisfaction of any or all of the following: (a) any disgorgement ordered against the 
Respondent, whether or not the Commission has fully or partially waived payment of 
such disgorgement; (b) any arbitration award related to the conduct that served as the 
basis for the Commission order; (c) any self-regulatory organization arbitration award to 
a customer, whether or not related to the conduct that served as the basis for the 
Commission order; and (d) any restitution order by a self-regulatory organization, 
whether or not related to the conduct that served as the basis for the Commission order. 

15 
 
 
 
B. Pursuant to Exchange Act Section 21C, McKenna and Eide cease and desist from 
committing or causing any violations and any future violations of Section 17(a) of the 
Exchange Act and Rule 17a-8 thereunder. 
 
C. Pursuant to Exchange Act Section 21B, Advisers Act Section 203(i), and 
Investment Company Act Section 9(d), Respondent McKenna shall, within ten (10) days 
of the entry of this Order, pay a civil money penalty in the amount of $20,000 to the 
Securities and Exchange Commission for transfer to the general fund of the United States 
Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not made, 
additional interest shall accrue pursuant to 31 U.S.C. § 3717. 
 
D. Pursuant to Exchange Act Section 21B, Respondent Eide shall, within ten (10) 
days of the entry of this Order, pay a civil money penalty in the amount of $40,000 to the 
Securities and Exchange Commission for transfer to the general fund of the United States 
Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not made, 
additional interest shall accrue pursuant to 31 U.S.C. § 3717. 
 
 Payment must be made in one of the following ways: 
 
1. Respondent may transmit payment electronically to the Commission, 
which will provide detailed ACH transfer/Fedwire instructions upon request; 
2. Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 
3. Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to: 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
 Payments by check or money order must be accompanied by a cover letter 
identifying the particular Respondent in these proceedings, and the file number of these 
proceedings; a copy of the cover letter and check or money order must be sent to Antonia 
Chion, Associate Director, Division of Enforcement, Securities and Exchange 
Commission, 100 F Street NE, Washington, DC 20549. 
 
 Amounts ordered to be paid as civil money penalties pursuant to this Order shall 
be treated as penalties paid to the government for all purposes, including all tax purposes.  
To preserve the deterrent effect of the civil penalty, Respondents agree that in any 
Related Investor Action, they shall not argue that they are entitled to, nor shall they 
benefit by, offset or reduction of any award of compensatory damages by the amount of 

16 
 
 
any part of Respondents’ payment of a civil penalty in this action (“Penalty Offset”).  If 
the court in any Related Investor Action grants such a Penalty Offset, Respondents agree 
that they shall, within 30 days after entry of a final order granting the Penalty Offset, 
notify the Commission’s counsel in this action and pay the amount of the Penalty Offset 
to the Securities and Exchange Commission.  Such a payment shall not be deemed an 
additional civil penalty and shall not be deemed to change the amount of the civil penalty 
imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 
means a private damages action brought against Respondents by or on behalf of one or 
more investors based on substantially the same facts as alleged in the Order instituted by 
the Commission in this proceeding. 
 
E. It is further ordered that, solely for purposes of exceptions to discharge set forth in 
Section 523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true 
and admitted by Respondents, and further, any debt for disgorgement, prejudgment 
interest, civil penalty or other amounts due by Respondents under this Order or any other 
judgment, order, consent order, decree or settlement agreement entered in connection 
with this proceeding, is a debt for the violation by Respondents of the federal securities 
laws or any regulation or order issued under such laws, as set forth in Section 523(a)(19) 
of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
 
By the Commission. 
   
  Brent J. Fields 
Secretary 
 

UNITED STATES OF AMERICA 

Before the 

SECURITIES AND EXCHANGE COMMISSION 

SECURITIES EXCHANGE ACT OF 1934 
Release No. 82957/ March 28, 2018 

ADMINISTRATIVE PROCEEDING 
File No. 3-18413 

 

In the Matter of 

KEVIN MCKENNA and ROBERT 
EIDE 

Respondents. 

 ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS 

PURSUANT TO SECTIONS 15(b) AND 21C 

OF THE SECURITIES EXCHANGE ACT OF 

1934, SECTION 203(f) OF THE 

INVESTMENT ADVISERS ACT OF 1940, 

AND SECTION 9(b) OF THE INVESTMENT 

COMPANY ACT OF 1940, MAKING 

FINDINGS, AND IMPOSING REMEDIAL 

SANCTIONS AND A CEASE-AND-DESIST 

ORDER 

 

I. 

The Securities and Exchange Commission (“Commission”) deems it appropriate that 

public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to 

Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”), Section 

203(f) of the Investment Advisers Act of 1940 (“Advisers Act”), and Section 9(b) of the 

Investment Company Act of 1940 (“Investment Company Act”) against Kevin McKenna and 

Robert Eide (collectively “Respondents”). 

II. 

 In anticipation of the institution of these proceedings, Respondents have submitted Offers 

of Settlement (“Offers”), which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the 

findings herein, except as to the Commission’s jurisdiction over them and the subject matter of 

these proceedings, which are admitted, and except as provided in Section IV.E. herein, 

Respondents consent to the entry of this Order Instituting Administrative and Cease-and-Desist 

Proceedings Pursuant to Sections 15(b) and 21C of the Exchange Act of 1934, Section 203(f) of 

the Investment Advisers Act of 1940, and Section 9(b) of the Investment Company Act of 1940, 

Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as 

set forth below. 



2 
 

 

III. 

On the basis of this Order and Respondents’ Offer, the Commission finds
1 

that: 

SUMMARY 

This matter involves the conduct of two senior persons in connection with anti-money 

laundering (“AML”) compliance failures at Aegis Capital Corporation (“Aegis” or “the firm”), a 

registered broker-dealer:  Kevin McKenna (“McKenna”) who served as the firm’s AML 

Compliance Officer (“AML CO”) from June 2012 to mid-2013 and Robert Eide (“Eide”), who 

serves as the firm’s Chief Executive Officer (“CEO”).   

From at least late 2012 through early 2014, Aegis failed to file Suspicious Activity 

Reports (“SARs”) on hundreds of transactions when it knew, suspected, or had reason to suspect 

that the transactions involved the use of the broker-dealer to facilitate fraudulent activity or had 

no business or apparent lawful purpose.  Many of the transactions involved red flags of potential 

market manipulation, including high trading volume in companies with little or no business 

activity during a time of simultaneous promotional activity.  Aegis did not file SARs on these 

transactions even when it specifically identified AML red flags implicated by these transactions 

in its written supervisory procedures.   

Under Aegis’ written supervisory procedures, the firm’s AML COs (McKenna and then 

another former AML CO (“Former AML CO”)) were responsible for filing SARs on the firm’s 

behalf.  Throughout the relevant period, McKenna and the Former AML CO became aware of 

transactions that exhibited numerous AML red flags through alerts from Aegis’ clearing firms 

(hereinafter defined as “AML Alerts”).  McKenna and the Former AML CO were the primary 

points of contact for the clearing firms as it related to suspicious activity.  Although the AML 

Alerts raised many red flags – including many red flags listed in Aegis’ written supervisory 

procedures as examples of suspicious activities – McKenna and the Former AML CO did not file 

SARs on Aegis’ behalf regarding these transactions and they did not create written analyses or 

compile other records indicating that they considered filing SARs.   

Throughout the relevant period, Eide was alerted to at least some of these suspicious low-

priced securities transactions as well, but he failed to take adequate steps to ensure that Aegis 

was filing the requisite SARs.  For example, in January 2013, Aegis’ clearing firm began 

identifying red flags in Aegis’ low-priced securities business and communicated them to Aegis 

personnel through the AML Alerts.  Then, in a January 2014 letter directly addressed to Eide, the 

Commission’s Office of Compliance Inspections and Examinations (“OCIE”) identified serious 

deficiencies in Aegis’ SAR-filing practices related to its low-priced securities business.  

Although subsequent suspicious transactions occurred at Aegis, the firm did not file SARs 

regarding those transactions.   

                                                 

1
 
 The findings herein are made pursuant to Respondents’ Offers and are not binding on any other person or 

entity in this or any other proceeding.
 



3 
 

 

As a result of the foregoing, McKenna willfully
2

 aided and abetted and caused Aegis’ 

violations of Exchange Act Section 17(a) and Rule 17a-8 thereunder and Eide was a cause of 

Aegis’ violations. 

RESPONDENTS 

 Kevin McKenna, 61.  McKenna served as Aegis’ AML CO from June 2012 to June 

2013. 

 Robert Eide, 65.  Eide is the founder and CEO of Aegis Capital Corporation, and the 

100% owner of Aegis Capital Holding Corporation, which is the 100% owner of Aegis Capital 

Corporation. 

OTHER RELEVANT ENTITIES 

 Aegis is a dually-registered investment adviser and broker-dealer with multiple branches 

and is headquartered in New York, NY.  For its fiscal year 2014, Aegis had revenues of 

approximately $123 million and, for its fiscal year 2015, revenues of approximately $98 million.  

During those fiscal years, Aegis had revenues of approximately $250,000 and $270,000 from its 

low-priced securities business.  Aegis’ business consists of investment banking, venture capital, 

and debt market services as well as full-service retail and institutional advisory and brokerage 

services.   

FACTS 

A. Aegis’ Low Priced Securities Business 

1. During the relevant period, Aegis had various brokerage customers who transacted in 

low-priced securities.  Several of these customers did so through Delivery Versus 

Payment/Receive Versus Payment accounts (“DVP/RVP”).  In DVP/RVP accounts held 

at Aegis, the customer deposited their shares at another firm in a custodial account, and 

the sale transactions were effected through Aegis.  During the relevant period, Aegis had 

relationships with various clearing firms that assisted in effecting low-priced securities 

transactions. 

2. Aegis had customers at their branch offices who transacted in low-priced securities.  

Several of these customers were foreign financial institutions that effected transactions on 

behalf of their underlying customers, all of whom were unknown to Aegis. 

                                                 

2
 
 A willful violation of the securities laws means merely “that the person charged with the duty knows what 

he is doing.” Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 

(D.C. Cir. 1949)). 



4 
 

 

B. Aegis’ Anti-Money Laundering Compliance Program – Written Supervisory Procedures 

Concerning SARs and Specific Red Flags Related to Market Manipulations 

3. During the relevant period, Aegis had specific written supervisory procedures concerning 

compliance with its AML responsibilities.  Aegis’ written supervisory procedures 

expressly identified Aegis’ AML CO as the individual responsible for deciding whether 

Aegis needed to file a SAR.  Moreover, Aegis’ written supervisory procedures stated that 

all Aegis employees were obligated to “promptly report to the [AML CO] any known or 

suspected violations of anti-money laundering policies as well as other suspected 

violations or crimes.” 

4. Pursuant to 31 C.F.R. § 1023.320 (the “SAR Rule”), Aegis was required to file SARs for 

transactions by, at or through the firm that involved or aggregated at least $5,000 if Aegis 

knew, suspected, or had reason to suspect that, among other things, the transactions 

involved funds derived from illegal activity, had no business or apparent lawful purpose, 

or involved using Aegis to facilitate criminal activity.  Aegis explicitly cited the SAR 

Rule in its written supervisory procedures. 

5. Aegis, in its written supervisory procedures, expressly identified certain trading in low-

priced securities as suspicious activity that could warrant a SAR filing:   

Aegis will file [SARs] for transactions that may be indicative of 

money laundering activity.  Suspicious activities include a wide 

range of questionable activities; examples include trading that 

constitutes a substantial portion of all trading for the day in a 

particular security . . . [and] heavy trading in low-priced securities.  

 

(emphasis added.) 

 

6. Aegis, in its written supervisory procedures, also expressly identified specific AML red 

flags associated with low-priced securities transactions of which its employees should be 

aware.  These specific AML red flags – many of which were also described as red flags 

in industry notices issued by FINRA (e.g., FINRA Notice to Members 09-05 and NASD 

Notice to Members 02-21) – included the following:   

i. There is a sudden spike in investor demand for, coupled with a rising price in, a 

thinly-traded or low-priced security; 

ii. The issuer has been through several recent name changes, business combinations 

or recapitalizations, or the company’s officers are also officers of numerous 

similar companies;  

iii. The issuer’s SEC filings are not current, are incomplete, or nonexistent;  

iv. The customer appears to be acting as an agent for an undisclosed principal, but 

declines or is reluctant, without legitimate commercial reasons, to provide 

information or is otherwise evasive regarding that person or entity; 



5 
 

 

v. The customer’s account has wire transfers that have no apparent business purpose 

to or from a country identified as a money laundering risk or a bank secrecy 

haven; and 

vi. The customer, for no apparent reason or in conjunction with other “red flags,” 

engages in transactions involving certain types of securities, such as penny stocks 

. . . which although legitimate, have been used in connection with fraudulent 

schemes and money laundering activity. 

C. McKenna and the Former AML CO Failed to File SARs on Aegis’ Behalf Concerning 

Low-Priced Securities Transactions  

7. McKenna and the Former AML CO – throughout the relevant period – failed to file 

SARs on Aegis’ behalf concerning low-priced securities transactions, and they did not 

create written analyses or compile other records indicating that they considered filing 

SARs.    

8. McKenna and the Former AML CO failed to file SARs on Aegis’ behalf despite the fact 

that numerous low-priced securities transactions effected through the firm exhibited 

several of the AML red flags that Aegis specifically identified in its written supervisory 

procedures. 

9. In particular, McKenna and the Former AML CO failed to file SARs on transactions in 

which Aegis’ customers were:  

(i) selling large quantities of low-priced securities that comprised a significant 

percentage of the issuers’ daily trading volume and outstanding float;  

(ii) trading shares of issuers who had changed names and business lines;  

(iii) selling substantial shares of low-priced securities during periods of spikes in 

price and volume of the issuers’ securities and during paid promotional 

campaigns; and/or 

(iv) trading in shares of issuers’ that had little or no market activity until the 

promotions began. 

10. McKenna and the Former AML CO failed to file SARs on Aegis’ behalf on low-priced 

securities transactions even when they received AML Alerts from its clearing firm about 

such suspicious transactions.   

11. These AML Alerts were sent from a clearing firm that Aegis hired in July 2012 and 

transitioned its clearing business to by December 2012 (the “New Clearing Firm”).   

12. Beginning in January 2013, the New Clearing Firm identified AML red flags in Aegis’ 

low-priced securities business.  However, despite receiving these AML Alerts, McKenna 

and the Former AML CO failed to file SARs on Aegis’ behalf, and they did not create 

written analyses or compile other records indicating that they considered filing SARs.  



6 
 

 

Nor did they follow up with others to learn why firm employees or Aegis’ trade 

surveillance system had not brought the suspicious transactions identified in the AML 

Alerts to their attention. 

13. Had McKenna and the Former AML CO followed up to learn why suspicious 

transactions were not being brought to their attention through the firm’s own internal 

systems, they would have learned that the firm’s trade surveillance system did not 

analyze DVP/RVP transactions for suspicious activity.  Rather, they would have learned 

that these transactions were simply batch approved by the applicable Aegis personnel.   

D. Illustrative Examples of Transactions in which McKenna or the Former AML CO Failed 

to File SARs on Aegis’ Behalf  

i. Customer A 

14. Between October 17 and December 27, 2012, an Aegis customer – Customer A – sold 

approximately 2.1 million shares of Issuer A, which traded on OTC Link (previously 

“Pink Sheets”) operated by OTC Markets Group Inc. (“OTC Link”).  Customer A held a 

DVP/RVP account at Aegis and is a private Swiss bank that traded significant volumes of 

low-priced securities through an omnibus arrangement with Aegis on behalf of the Swiss 

bank’s underlying clients who were unknown to Aegis. 

15. At the same time Customer A was selling shares of Issuer A, a stock promotion touting 

the company’s prospects was underway.  Coinciding with the promotional campaign, 

Issuer A’s share price fluctuated from a low of $0.51 to a high of $0.93 on average daily 

volume of 558,792 shares.  In the two months prior to October 17, 2012, no shares of 

Issuer A traded at all.  Thus, Customer A’s trading in Issuer A occurred during a period 

of a sudden spike in price and volume – which were specific AML red flags identified in 

Aegis’ written supervisory procedures. 

16. Prior to Customer A’s trading in Issuer A, Issuer A had undergone several name changes 

– again a specific AML red flag identified in Aegis’ written supervisory procedures.  

Moreover, contrary to the rosy picture of Issuer A painted by the above described 

promotional campaign, Issuer A’s Form 10-Q for the period ending September 30, 2012 

reported that Issuer A had no revenues, a net loss of $143,345, and a “going concern” 

statement from its management.   

17. Despite these red flags associated with the trading by Customer A, McKenna did not file 

a SAR on Aegis’ behalf.    

18. From December 2012 to March 2013, Customer A again traded suspiciously in a low-

priced security, this time in Issuer B – another security traded on OTC Link.   

19. Indeed, during that period, Customer A sold 8.2 million shares of Issuer B for proceeds of 

approximately $2.4 million.  The shares it sold accounted for more than 8.8% of Issuer 

B’s outstanding shares.  This trading coincided with a promotional campaign during 

which Issuer B’s share price climbed from a low of approximately $0.40 to a high of 



7 
 

 

approximately $0.96, before falling again to approximately $0.07, on average daily 

trading volume of approximately 1.5 million shares.  The only trading in the six months 

prior to the beginning of the promotional campaign occurred on just one day and 

involved only 10,000 shares.   

20. In addition to the suspicious trading noted above, there were other indicia that Issuer B 

likely was the subject of market manipulation.  For example, Issuer B reported in 2013 

that it was a world-class graphite company, yet two years earlier it had been a Malaysian 

publishing company that operated under a different name.  Recent changes in an issuer’s 

name and business was one of the specific AML red flags identified in Aegis’ written 

supervisory procedures. 

21. On April 4, 2013, the New Clearing Firm sent an AML Alert to McKenna and other 

Aegis personnel concerning Customer A’s trading in Issuer B, which was the first time 

McKenna became aware of these transactions.  In the April 4, 2013 AML Alert, the New 

Clearing Firm noted that Customer A had received over 9 million shares of Issuer B into 

its account between December 12, 2012 and March 4, 2013, and asked how and when 

Customer A acquired the shares and whether there was a registration statement in effect 

for them.   

22. Prior to this April 4, 2013 AML Alert, the New Clearing Firm had expressed concerns to 

McKenna, Eide, and other Aegis personnel about Aegis’ low-priced securities practices.  

In fact, in March 2013, the New Clearing Firm implemented specific restrictions on 

Aegis’ low-priced securities business.  These restrictions included a requirement that, 

before Aegis customers could sell low-priced securities that had been physically 

deposited at the firm, either the AML CO, the CEO, or the firm’s COO had to sign a red 

flag identifiers form indicating that the signatory had reviewed the proposed transactions 

for red flags commonly associated with market manipulation in low-priced securities.  

23. The New Clearing Firm continued to communicate with McKenna and other Aegis 

personnel with additional questions concerning Customer A’s trading in Issuer B. 

24. For example, on April 17, 2013, the New Clearing Firm emailed McKenna and other 

Aegis personnel citing three websites on which it found evidence of Issuer B promotions 

and made three requests:  (i) describe the due diligence completed before executing 

Customer A’s transactions; (ii) describe how the relationship with Customer A was 

established; and (iii) identify Customer A’s underlying clients. 

25. Despite the AML Alert and questions from the New Clearing Firm, Customer A 

continued to trade low-priced securities at Aegis.  Accordingly, on May 20, 2013, the 

New Clearing Firm wrote to McKenna about Customer A:   

As you know AML is really tweaked on this [Customer A] account.  

Because the account is continuing to trade in multiple securities 

which have been subject to regulatory inquiries, we need a concrete 

plan to address this situation as soon as possible.  In absence of 

receiving a mutually agreeable plan, AML going [sic] to be blocking 



8 
 

 

transactions in the account beginning Tuesday prior to market 

opening. 

 

26. Eide requested extensions from the New Clearing Firm so that Customer A could 

continue to trade while Aegis attempted to transition Customer A’s accounts to another 

broker-dealer.  Ultimately, Aegis closed Customer A’s accounts on September 13, 2013, 

at least in part because of concerns regarding the low-priced securities that were traded in 

them. 

27. Despite these red flags associated with the trading by Customer A and Aegis’ closure of 

the account due to the presence of suspicious activity, McKenna did not file a SAR on 

Aegis’ behalf and did not create written analyses or compile other records indicating that 

he even considered filing a SAR.  The fact that Customer A’s account was a DVP/RVP 

account did not relieve Aegis of its SAR filing obligations with respect to that account. 

ii. Customer B 

28. Customer B is a British Virgin Islands company based in China that offers consulting and 

advisory services. 

29. In an approximately one month period beginning in April 2013, Customer B sold 

approximately 200,000 shares of Issuer C through Aegis for proceeds of $2.3 million, or 

over $10 per share.  Issuer C was listed on NASDAQ. 

30. Just six months prior to these sales, Issuer C’s share price was $0.45 per share.  And, a 

month prior to these sales, Issuer C’s share price was approximately $5 per share. 

31. On April 25, 2013, Customer B sent a request to wire approximately $600,000 of the $2.3 

million in proceeds to its own bank account in Hong Kong. 

32. Regarding this request, an Aegis compliance employee wrote to McKenna, Eide, and the 

firm’s COO to explain that the funds included in the transfer request were proceeds from 

Customer B’s trading and wrote “[Issuer C’s] share price has risen quite a bit in the past 6 

months.  I’d prefer a member of senior management authorize and approve this wire.” 

33. After the COO asked whether Issuer C’s shares were restricted when they arrived at 

Aegis, the compliance employee replied to McKenna, Eide, and the firm’s COO “[c]lean 

shares but the sudden spike in price is a concern.”  

34. Notwithstanding the red flags the compliance employee raised, McKenna did not file a 

SAR on Aegis’ behalf concerning either the suspicious trading or the substantial proceeds 

wired offshore and did not create written analyses or compile other records indicating 

that he considered filing SARs.   

35. After the initial wire was sent to Customer B’s Hong Kong account in late April 2013, 

Customer B made requests to send two more wires totaling the remainder of the proceeds 

from the trading.  Again, McKenna did not file a SAR on Aegis’ behalf concerning the 



9 
 

 

substantial proceeds wired offshore and did not create written analyses or compile other 

records indicating that he even considered filing a SAR.       

iii. Customer C 

36. In early November 2013, the New Clearing Firm sent another AML Alert, this time 

involving a different customer, Customer C.  Customer C had a DVP/RVP account at 

Aegis.  By this time, the Former AML CO had replaced McKenna as the firm’s AML 

CO. 

37. On November 1, 2013, the New Clearing Firm sent the Former AML CO an AML Alert 

outlining Customer C’s suspicious trading in several low-priced securities, including 

Issuers D and E and noting that in approximately six months Customer C had sold 

approximately 1 billion shares of low-priced securities through Aegis (emphasis added).  

Both Issuers D and E were traded on OTC Link. 

38. In its AML Alert, the New Clearing Firm noted that Customer C, between September 17 

and October 31, 2013, had sold 31% of Issuer D’s outstanding shares and that the average 

daily trading volume had increased by approximately five fold during Customer C’s 

trading while the share price had dropped by approximately 90%.  

39. Other evidence also indicates Issuer D may have been the subject of market 

manipulation.  In particular, Issuer D had experienced a rapid increase in the company’s 

stock price and volume that coincided with a promotional campaign that was inconsistent 

with the company’s financial performance as reflected in its SEC filings. 

40. With respect to Issuer E, the New Clearing Firm noted in its AML Alert that Issuer E had 

reported no revenues and that Customer C had sold over 60% of the company’s 

outstanding shares in two and a half months while the share price had dropped by 

approximately 50%. 

41. In addition to suspicious trading in Issuers D and E, the New Clearing Firm identified in 

the AML Alert sent to the Former AML CO similarly suspicious trading by Customer C 

in other low-priced securities including that Customer C – in one particular low-priced 

security – had sold more shares in three months than the issuer had outstanding. 

42. In the AML Alert, the New Clearing Firm requested a description of: (i) the due diligence 

performed on the customer; (ii) the due diligence performed on the securities Customer C 

liquidated in the account; and (iii) how Aegis was comfortable with the activity in the 

account.  

43. On November 5, 2013, the Former AML CO informed the New Clearing Firm that Aegis 

had reviewed Customer C’s account activity and its account opening paperwork and had 

decided to close the account, which it did, at least in part, because of the AML concerns 

outlined in the AML Alert.       

44. Despite these red flags associated with the trading by Customer C and closing the account 

due to the presence of suspicious activity, the Former AML CO did not file a SAR on 



10 
 

 

Aegis’ behalf.  Moreover, the Former AML CO did not create written analyses or 

compile other records indicating that he even considered filing a SAR.  The fact that 

Customer C’s account was a DVP/RVP account did not relieve Aegis of its SAR filing 

obligations with respect to that account. 

iv. Customer D 

45. Another Aegis customer – Customer D – engaged in suspicious low-priced securities 

transactions for which Aegis did not file a SAR.  Customer D was a foreign financial 

institution with a DVP/RVP account at the firm and traded on behalf of underlying 

customers who were unknown to Aegis. 

46. Over an approximately six-month period beginning in late May 2013, Customer D sold 

approximately 457,000 shares of Issuer F for proceeds of approximately $2.8 million.  

Issuer F traded on OTC Link.  Just prior to the trading – and coinciding with a 

promotional campaign – Issuer F’s share price climbed from $3.90 to $9.39 on 

substantially increased volume. 

47. Customer D was not the only Aegis customer who traded suspiciously in Issuer F.  

Starting approximately two months before Customer D’s trading, Customers A and E 

sold a substantial amount of Issuer F shares for substantial proceeds.  Customer E was yet 

another foreign financial institution with a DVP/RVP account at the firm and traded on 

behalf of underlying customers who were unknown to Aegis; it was incorporated in New 

Zealand and operated from Switzerland. 

48. In particular, Customer A sold approximately 638,000 shares of Issuer F for proceeds of 

approximately $3.7 million while Customer E sold approximately 494,000 shares of 

Issuer F for proceeds of approximately $3.3 million.  Thus, together Customers A and E 

sold over one million shares of Issuer F securities for proceeds of approximately $7 

million. 

49. Despite these red flags associated with the trading by Customer D and two other Aegis 

customers, McKenna did not file a SAR regarding the above trading on Aegis’ behalf.    

50. In early June 2013 – just a few weeks after Customer D began its trading in Issuer F – 

Customer D traded in another low-priced security transaction, this time Issuer G.  Issuer 

G also traded on OTC Link. 

51. Between June 11 and 17, 2013 and during a paid promotional campaign for Issuer G, 

Customer D sold approximately 340,000 shares of Issuer G for proceeds of 

approximately $248,000.   

52. Moreover, another Aegis customer, Customer F, traded suspiciously in Issuer G at the 

same time as Customer D did.  In particular, Customer F sold approximately 760,000 

shares of Issuer G through Aegis during the promotion for proceeds of approximately 

$840,000.  Customer F was yet another foreign financial institution with a DVP/RVP 



11 
 

 

account at the firm and traded on behalf of underlying customers who were unknown to 

Aegis. 

53. On December 2, 2013, while the Former AML CO was serving as the AML CO, the New 

Clearing Firm sent an AML Alert to the Former AML CO regarding Customer D’s 

trading in Issuer G, and wrote that the trading “exhibited characteristics commonly 

associated with a pump-and-dump scheme; including paid stock promotion, a significant 

increase in both price and trading volume, followed by a precipitous drop in price and 

volume.” 

54. In the AML Alert, the New Clearing Firm also noted that Issuer G had changed both its 

name and business line (to a medical device company from an auto parts manufacturer), 

had no revenue and minimal trading volume until the stock promotion began, and that 

Customer D’s trading was similar to the suspicious trading by two other Aegis customers 

that had prompted the New Clearing Firm to request that those accounts be closed earlier 

in the year. 

55. The Former AML CO ordered that Customer D’s account be closed and acknowledged in 

an email that the compliance department did “not have the bandwidth to monitor the 

account.”  Customer D’s accounts were ultimately closed, at least in part, because of the 

AML concerns associated with it.   

56. Despite these red flags associated with the trading by Customer D and at least one other 

Aegis customer in Issuer G as well as the closing of Customer D’s account due at least in 

part to concerns regarding low-priced securities transactions, the Former AML CO did 

not file a SAR on Aegis’ behalf.  Moreover, the Former AML CO did not create any 

written analyses or compile other documents indicating that he considered filing a SAR 

on Aegis’ behalf.  The fact that the above described accounts were DVP/RVP accounts 

did not relieve Aegis of its SAR filing obligations with respect to those accounts. 

v. November 18, 2013 DVP/RVP Update to Written Supervisory Procedures 

57. On November 18, 2013 – in response to the deficiencies identified by OCIE – the Former 

AML CO sent an email to all Aegis employees containing an update to Aegis’s written 

supervisory procedures that required low-priced securities transactions in DVP/RVP 

accounts to be subjected to the same due diligence as cash accounts when customers 

deposited physical securities. 

58. In particular, Aegis’ updated written supervisory procedures required Aegis’ DVP/RVP 

customers to submit Deposited Securities Request Questionnaires (“DSRQs”) for any 

low-priced securities it wished to trade and required Aegis to complete due diligence to 

identify red flags associated with the issuers of low-priced securities. 

59. DSRQs include, among other things, information about how the customer obtained a 

particular security, whether the customer is an affiliate of the issuer, and how many 

shares of the security the customer owns.  DSRQs had to be filled out by the customer 



12 
 

 

and approved by the registered representative and a member of Aegis’ management 

before any trading was to occur.   

vi. Customer G 

60. Notwithstanding this update to Aegis’ written supervisory procedures, however, at least 

one of Aegis’ DVP/RVP customers (Customer G) traded suspiciously in low-priced 

securities and did so before the required DSRQ process had been completed.  Customer 

G, a New York corporation, is a microcap hedge fund that held a DVP/RVP account at 

Aegis. 

61. Between February 10, 2014 and February 20, 2014, Customer G sold 705.9 million 

shares of Issuer H through Aegis for proceeds of approximately $1.24 million.  Issuer H 

traded on OTC Link. 

62. On February 19, 2014, the New Clearing Firm sent an AML Alert that the Former AML 

CO received explaining that it was going to block Customer G’s account at market close 

because, among other reasons, Customer G had already sold 200 million shares of Issuer 

H that day and 2.7 billion shares of low-priced securities since it opened its account.   

63. In addition to the suspicious trading, there were other indicia that Issuer H may have been 

the subject of market manipulation.  For example, Issuer H experienced a large increase 

in price and volume that coincided with a promotional campaign.  Moreover, the 

company’s name had changed several times before becoming Issuer H.   

64. The AML Alert was not limited to the suspicious Issuer H trades; it also described 

suspicious trading by Customer G in over 1.6 billion shares of the securities of ten 

additional microcap issuers.  

65. The New Clearing Firm subsequently asked for an explanation of: (i) the due diligence 

Aegis performed on the customer; (ii) the due diligence Aegis performed on the securities 

liquidated in the account; and (iii) how Aegis was comfortable with the activity.    

66. Even after Aegis received the AML Alert concerning Customer G’s trading, Customer G 

continued to trade in Issuer H.  Indeed, on February 19 and 20, 2014, Customer G sold an 

additional 120 million shares of Issuer H, trades that McKenna reviewed in his new role 

as branch manager.  

67. At the time of Customer G’s trading in February 2014, Aegis had already implemented 

its new DSRQ policy for trading in DVP/RVP accounts.  The DSRQ packet for Customer 

G’s trading in Issuer H, however, was not signed by any of the required Aegis personnel 

and, thus, Customer G should never have been allowed to liquidate any of its Issuer H 

shares through Aegis.  

68. Despite the significant trading by Customer G in Issuer H and the other red flags 

associated with the transactions, the Former AML CO did not file a SAR on Aegis’ 

behalf.  Moreover, the Former AML CO did not create written analyses or compile other 

records indicating the consideration of filing a SAR.  The fact that Customer G’s account 



13 
 

 

was a DVP/RVP account did not relieve Aegis of its SAR filing obligations with respect 

to that account. 

E. Eide Was A Cause of Aegis’ Violations  

69. Throughout the relevant period, Eide learned of some of the red flags associated with 

Aegis’ low-priced securities business described above but failed to take adequate steps to 

ensure that Aegis filed the SARs required by the SAR Rule.   

70. For example, Eide learned from the New Clearing Firm – in January 2013 – that it had 

identified red flags in Aegis’ low-priced securities business.   

71. After January 2013, Eide became aware of additional concerns regarding activity in 

Aegis’ low-priced securities business.  For example, in a January 31, 2014 letter 

addressed directly to Eide, OCIE identified significant deficiencies in Aegis’ SAR-filing 

practices including the fact that Aegis filed no SARs relating to its low-priced securities 

business despite indicia that certain stock sales may have been part of fraudulent “pump 

and dump” schemes.   

72. This letter was sent directly to Eide approximately twenty days prior to the AML Alert 

sent to Aegis’ compliance department detailing Customer G’s suspicious trading in Issuer 

H.  Notwithstanding the receipt of OCIE’s letter, however, Aegis filed no SAR 

concerning Customer G’s suspicious trading.    

73. Despite his awareness of AML red flags and deficiencies in Aegis’ SAR-filing practices, 

Eide failed to take adequate steps to ensure that Aegis filed the SARs required by the 

SAR Rule.  Eide did not, for example, follow up with McKenna or the Former AML CO 

to ensure that they were filing SARs on Aegis’ behalf.    

VIOLATIONS 

74. The Bank Secrecy Act (“BSA”), and implementing regulations promulgated by FinCEN, 

require that broker-dealers file SARs with FinCEN to report a transaction (or a pattern of 

transactions of which the transaction is a part) conducted or attempted by, at, or through 

the broker-dealer involving or aggregating to at least $5,000 that the broker-dealer 

knows, suspects, or has reason to suspect:  (1) involves funds derived from illegal activity 

or is conducted to disguise funds derived from illegal activities; (2) is designed to evade 

any requirement of the BSA; (3) has no business or apparent lawful purpose and the 

broker-dealer knows of no reasonable explanation for the transaction after examining the 

available facts; or (4) involves use of the broker-dealer to facilitate criminal activity.  31 

C.F.R. § 1023.320(a)(2). 

75. Exchange Act Rule 17a-8 requires broker-dealers to comply with the reporting, record-

keeping, and record retention requirements of the BSA.  The failure to file a SAR as 

required by the SAR Rule is a violation of Section 17(a) of the Exchange Act and Rule 

17a-8 thereunder. 



14 
 

 

76. By engaging in the conduct described above, Aegis violated Section 17(a) of the 

Exchange Act and Rule 17a-8 thereunder. 

77. By engaging in the conduct described above, McKenna willfully aided and abetted and 

caused Aegis’ violations of Section 17(a) of the Exchange Act and Rule 17a-8 

thereunder. 

78. By engaging in the conduct described above, Eide was a cause of Aegis’ violations of 

Section 17(a) of the Exchange Act and Rule 17a-8 thereunder. 

IV. 

 In view of the foregoing, the Commission deems it appropriate and in the public interest 

to impose the sanctions agreed to in Respondents’ Offers.  

 

 Accordingly, it is hereby ORDERED that: 

 

A. Pursuant to Exchange Act Section 15(b)(6) and Advisers Act Section 203(f), 

Respondent McKenna shall be, and hereby is, subject to the following limitations on his 

activities:   

 

(1) Respondent McKenna shall not serve or act as a chief compliance officer 

or otherwise serve in a compliance capacity that reports, directly or indirectly, to 

the chief compliance officer with any broker, dealer, investment adviser, 

municipal securities dealer, municipal advisor, transfer agent, or nationally 

recognized statistical rating organization; or as a designated anti-money 

laundering compliance person or otherwise serve in an anti-money laundering 

compliance capacity that reports, directly or indirectly, to the designated anti-

money laundering compliance person with any broker, dealer, investment adviser, 

municipal securities dealer, municipal advisor, transfer agent, or nationally 

recognized statistical rating organization.   

 

(2) Respondent McKenna may apply to act in such a compliance or anti-

money laundering compliance capacity after eighteen (18) months to the 

appropriate self-regulatory organization, or if there is none, to the Commission. 

 

 Any application to act in such a compliance or anti-money laundering compliance 

capacity will be subject to the applicable laws and regulations governing the reentry 

process, and permission to act in such a compliance or anti-money laundering compliance 

capacity may be conditioned upon a number of factors, including, but not limited to, the 

satisfaction of any or all of the following: (a) any disgorgement ordered against the 

Respondent, whether or not the Commission has fully or partially waived payment of 

such disgorgement; (b) any arbitration award related to the conduct that served as the 

basis for the Commission order; (c) any self-regulatory organization arbitration award to 

a customer, whether or not related to the conduct that served as the basis for the 

Commission order; and (d) any restitution order by a self-regulatory organization, 

whether or not related to the conduct that served as the basis for the Commission order. 



15 
 

 

 

B. Pursuant to Exchange Act Section 21C, McKenna and Eide cease and desist from 

committing or causing any violations and any future violations of Section 17(a) of the 

Exchange Act and Rule 17a-8 thereunder. 

 

C. Pursuant to Exchange Act Section 21B, Advisers Act Section 203(i), and 

Investment Company Act Section 9(d), Respondent McKenna shall, within ten (10) days 

of the entry of this Order, pay a civil money penalty in the amount of $20,000 to the 

Securities and Exchange Commission for transfer to the general fund of the United States 

Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not made, 

additional interest shall accrue pursuant to 31 U.S.C. § 3717. 

 

D. Pursuant to Exchange Act Section 21B, Respondent Eide shall, within ten (10) 

days of the entry of this Order, pay a civil money penalty in the amount of $40,000 to the 

Securities and Exchange Commission for transfer to the general fund of the United States 

Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not made, 

additional interest shall accrue pursuant to 31 U.S.C. § 3717. 

 

 Payment must be made in one of the following ways: 

 

1. Respondent may transmit payment electronically to the Commission, 

which will provide detailed ACH transfer/Fedwire instructions upon request; 

2. Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 

3. Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to: 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

 Payments by check or money order must be accompanied by a cover letter 

identifying the particular Respondent in these proceedings, and the file number of these 

proceedings; a copy of the cover letter and check or money order must be sent to Antonia 

Chion, Associate Director, Division of Enforcement, Securities and Exchange 

Commission, 100 F Street NE, Washington, DC 20549. 

 

 Amounts ordered to be paid as civil money penalties pursuant to this Order shall 

be treated as penalties paid to the government for all purposes, including all tax purposes.  

To preserve the deterrent effect of the civil penalty, Respondents agree that in any 

Related Investor Action, they shall not argue that they are entitled to, nor shall they 

benefit by, offset or reduction of any award of compensatory damages by the amount of 



16 
 

 

any part of Respondents’ payment of a civil penalty in this action (“Penalty Offset”).  If 

the court in any Related Investor Action grants such a Penalty Offset, Respondents agree 

that they shall, within 30 days after entry of a final order granting the Penalty Offset, 

notify the Commission’s counsel in this action and pay the amount of the Penalty Offset 

to the Securities and Exchange Commission.  Such a payment shall not be deemed an 

additional civil penalty and shall not be deemed to change the amount of the civil penalty 

imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 

means a private damages action brought against Respondents by or on behalf of one or 

more investors based on substantially the same facts as alleged in the Order instituted by 

the Commission in this proceeding. 

 

E. It is further ordered that, solely for purposes of exceptions to discharge set forth in 

Section 523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true 

and admitted by Respondents, and further, any debt for disgorgement, prejudgment 

interest, civil penalty or other amounts due by Respondents under this Order or any other 

judgment, order, consent order, decree or settlement agreement entered in connection 

with this proceeding, is a debt for the violation by Respondents of the federal securities 

laws or any regulation or order issued under such laws, as set forth in Section 523(a)(19) 

of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 

 

By the Commission. 

   

  Brent J. Fields 

Secretary