SECURITIES AND EXCHANGE COMMISSION v. AEGIS CAPITAL CORP.

 
 
UNITED STATES OF AMERICA 
Before 
the 
SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES ACT OF 1933 
Release No. 11086 / July 28, 2022 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 95390 / July 28, 2022 
 
INVESTMENT ADVISERS ACT OF 1940 
Release No. 6076 / July 28, 2022 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-20940 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS 
PURSUANT TO SECTION 8A OF THE 
SECURITIES ACT OF 1933 AND SECTIONS 
15(b) AND 21C OF THE SECURITIES 
EXCHANGE ACT OF 1934, AND SECTION 
203(e) OF THE INVESTMENT ADVISERS 
ACT OF 1940, MAKING FINDINGS, AND 
IMPOSING REMEDIAL SANCTIONS AND 
A CEASE-AND-DESIST ORDER 
 
I. 
The Securities and Exchange Commission (the “Commission” or “SEC”) deems it appropriate 
and in the public interest that public administrative and cease-and-desist proceedings be, and hereby 
are, instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) and Sections 
15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”), and Section 203(e) of the 
Investment Advisers Act of 1940 (“Advisers Act”) against Aegis Capital Corp. (“Aegis” or 
“Respondent”). 
II. 
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of 
Settlement (the “Offer”), which the Commission has determined to accept. Solely for the purposes 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 it and the subject matter of these proceedings, which are admitted, 
Respondent consents to the entry of this Order Instituting Administrative and Cease-and-Desist 
Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b) and 21C of the 
Securities Exchange Act of 1934, and Section 203(e) of the Investment Advisers Act of 1940, Making 
Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as set forth 
below. 
 
 
In the Matter of 
 
AEGIS CAPITAL CORP., 
 
Respondent. 

2 
 
 
 
III. 
On the basis of this Order and the Offer, the Commission finds
1
 
that: 
Summary 
1. These proceedings arise out of unsuitable recommendations of highly-complex 
variable interest rate structured products (“VRSPs”) by certain Aegis Registered Representatives 
(“Aegis RRs”) to forty-eight-retail customers (“Customers”).  It also relates to Aegis’s supervisory 
failures relating to unauthorized trading and material misstatements and omissions made by Aegis 
RRs concerning the VRSPs. 
2. Eleven Aegis RRs in Aegis’s Melville, New York branch office (“Melville 
Branch”) and three Aegis RRs in Aegis’s Boca Raton, Florida branch office (“Boca Branch”) 
recommended VRSPs to forty-eight Customers for whom the investments were unsuitable in light of 
each Customer’s investor profile and account information. 
3. An Aegis RR in the Boca Branch (“Aegis RR1”), who also was a Managing 
Director, made at least 1,000 unauthorized trades in seven Customers’ non-discretionary brokerage 
accounts between September 2015 and May 2019.  Aegis RR1 and another Aegis RR in the Boca 
Branch (“Aegis RR2”) made material misstatements and omissions about the VRSPs to Customers, 
falsely stating, in substance, that the Customers were guaranteed to receive their full invested 
principal at maturity from investing in VRSPs that, in fact, did not guarantee principal protection. 
4. From January 2015 through May 2019, Aegis failed reasonably to implement its: 
(1) Written Supervisory Procedures (“WSPs”); (2) structured products procedures, including the 
training requirements for structured products; and (3) policies and procedures concerning 
unauthorized trading, all with a view to preventing and detecting Aegis RRs’s violations of 
Sections 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 
promulgated thereunder.    
5. In addition, from January 2015 through May 2019, Aegis also failed to create 
certain required records relating to customer accounts. In particular, Aegis failed to make and keep 
current a record, as required by Rule 17a-3(a)(17)(i)(B)(1) under the Exchange Act, indicating that it 
furnished to each customer, at intervals no greater than thirty-six months, a copy of the account record 
or an alternate document with all information required by Rule 17a-3(a)(17)(i)(A) under the Exchange 
Act, including, among other things, the customer’s annual income and net worth, and the account’s 
investment objectives.   
6. Further, Aegis failed to make and keep current a record indicating that, for each 
change in a customer’s account investment objectives, Aegis furnished the customer with a copy of the 
updated account record or alternative document containing the information required by Rule 17a-
3(a)(17)(i)(B)(1) on or before the thirtieth day after receiving notice of a change, as required by Rule 
17a-3(a)(17)(i)(B)(3). 
 
 
                                                           
1
 The findings herein are made pursuant to Respondent’s Offer and are not binding on any other 
person or entity in this proceeding or any other proceedings. 
 

3 
 
 
 
Respondent 
7. Aegis, a New York corporation with its principal office in New York, New York, 
has been registered with the Commission as a broker-dealer since 1984 and as an investment 
adviser since 2010.  Aegis acts as an introducing broker to retail and institutional customers 
through twenty-three branch offices located across the United States.
2
 During the relevant period, 
Aegis at times employed more than 400 registered representatives. 
Variable Interest Rate Structured Products 
8. The VRSPs are complex, structured securities, typically issued by large well-known 
financial institutions, that offer guaranteed periodic fixed-interest rate payments, typically for one to 
three years. After the fixed-interest rate periods end, however, the VRSPs make periodic variable-
interest rate payments, but only if a spread exists in which the long-term Constant Maturity Swap 
(“CMS”) rate is greater than the short-term CMS rate and certain reference securities indexes, such as 
the S&P 500 and/or the Russell 2000 stock indexes, do not decline by more than a specified percentage. 
Consequently, once the fixed-interest rate payment periods end, the Customers are not guaranteed to 
receive any further interest payments from the VRSPs.  The prospectuses for several of the VRSPs at 
issue expressly disclosed the risk of non-payment of interest, stating, for example, that, “there can 
be no assurance that [investors] will receive a contingent interest payment on any interest payment 
date” and that “the securities are not a suitable investment for investors who require regular fixed 
income payments, since the contingent interest payments are variable and may be zero.” 
9. All of the VRSPs are “principal-at-risk” securities, which means that the Customers 
can lose some or all of their invested principal if the VRSPs’ respective reference securities indexes 
fail to perform within pre-determined ranges at maturity.  For example, preliminary prospectuses for 
VRSPs sold to the Customers expressly warned that: “There is no minimum payment at maturity on 
the securities.  Accordingly, investors may lose up to their entire initial investment in the securities.” 
10. Furthermore, the VRSPs typically have maturity periods of fifteen years or more and 
are not certain to trade in a liquid secondary market.  For example, a preliminary prospectus for a 
VRSP offered by Aegis specifically warns, “The securities will not be listed on any securities 
exchange. Therefore, there may be little or no secondary market for the securities.... Even if there is a 
secondary market, it may not provide enough liquidity to allow you to trade or sell the securities 
easily.... Accordingly, you should be willing to hold your securities to maturity.” 
Aegis RRs Made Unsuitable Recommendations of VRSPs 
11. Prior to recommending a security to a customer, a broker-dealer must satisfy its 
customer-specific suitability obligations by making a determination that a particular investment is 
suitable for the customer in light of the customer’s investment profile, as determined by the 
customer’s financial situation and needs, which include, among other things, age, liquidity needs, 
investment objectives, investment time horizon and risk tolerance.  See F.J. Kaufman and Co. of 
Virginia and Frederick J. Kaufman, Jr., Exch. Act Rel. No. 27535, at *3, 50 S.E.C. 164 (Dec. 13, 
1989) (Comm. Op., sustaining NASD findings) (suitability obligation “requires a broker-dealer to 
make a customer-specific determination of suitability and to tailor his recommendations to the 
customer’s financial profile and investment objectives”).   
 
                                                           
2
 At all times relevant to this matter, Aegis had over 40,000 retail customers.  The conduct at issue 
in this matter did not affect institutional customers. 

4 
 
 
 
12. Broker-dealers and their associated persons who make unsuitable recommendations 
violate Sections 17(a)(2) and 17(a)(3) of the Securities Act.
 3 
 See, e.g., Integral Financial, LLC and 
Weiming “Frank” Ho, Exch. Act Rel. No. 92537 (July 30, 2021) (settled order finding that a broker 
and its principal, through the firm’s registered representatives’ recommendations of VRSPs in 
violation of the customer-specific suitability requirements, failed reasonably to supervise and 
violated Sections 17(a)(2) and 17(a)(3) of the Securities Act); Herbert J. Sims and Co., Inc., Exch. 
Act Rel. No. 92538 (July 30, 2021) (settled order finding that the broker-dealer failed reasonably to 
supervise its registered representatives and violated Sections 17(a)(2) and 17(a)(3) of the Securities 
Act as a result of its registered representatives’ recommendations of VRSPs in violation of the 
customer-specific suitability requirements). 
13. From January 2015 through May 2019, fourteen Aegis RRs recommended VRSPs to 
forty-eight Customers for whom the securities were unsuitable based on each Customer’s financial 
situation and needs, as reflected by their risk tolerance, investment objectives, age, investment 
experience, liquidity needs, and investment time horizons. In July 2017, Aegis established 
procedures expressly prohibiting the sale of structured products, such as VRSPs, to customers who 
did not have “High” or “Maximum” risk tolerances and an investment objective of “Aggressive 
Growth / Aggressive Income” or “Speculation”.  None of these Customers had the requisite risk 
tolerances.  The Customers, variously, had minimum, low, or moderate risk tolerances, along with 
investment objectives of preservation of principal/income, balanced growth, growth, or aggressive 
growth/aggressive income; moderate or higher liquidity needs; and investment time horizons of less 
than fifteen years. They also sought periodic interest payments from their investments and to 
recover their entire invested principal at maturity.  As discussed above, the VRSPs are structured 
securities with long-term maturity periods, which do not guarantee periodic interest payments 
following the fixed-interest rate period, do not guarantee return of principal at maturity, and provide 
no assurance of liquidity.   
14. The information concerning the VRSPs, as well as the Customers’ investor profile 
information, were available for the Aegis RRs to use in determining whether the VRSPs were 
suitable investments for the Customers.  Accordingly, the Aegis RRs knew, were reckless in not 
knowing, or should have known that in light of the Customers’ respective financial situations and 
needs, investor profiles, and risk tolerances, the VRSPs were unsuitable for the Customers at the 
time that the Aegis RRs, including Aegis RR1 and Aegis RR2, recommended the investments. 
Aegis’s Policies and Procedures 
15. From January 2015 through February 2018, Aegis assigned responsibility for 
implementing Aegis’s policies and procedures in the Melville Branch, including the firm’s WSPs 
and structured products procedures, to, among others in Melville, the Branch Manager in the 
Melville Branch (“Supervisor 1”).  During this period, Supervisor 1 was also the designated 
supervisor in the Melville Branch responsible for conducting daily trade order reviews under the 
WSPs. 
 
                                                           
3
 A violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act does not require scienter and 
may rest on a finding of negligence.  See Aaron v. SEC, 446 U.S. 680, 701–02 (1980); see also 
SEC v. Wey, 246 F. Supp. 3d 894, 912 (S.D.N.Y. 2017) (“Unlike claims brought under Section 
10(b), Rule 10b–5, and Section 17(a)(1), the SEC need only allege that a defendant acted with 
negligence in order to plead violations of Sections 17(a)(2) and 17(a)(3).”). 

5 
 
 
 
16. From June 2016 through May 2019, Aegis assigned responsibility for 
implementing Aegis’s policies and procedures in the Boca Branch, including the firm’s WSPs and 
structured products procedures, to the Branch Manager in the Boca Branch (“Supervisor 2”). 
During this period, Supervisor 2 was also the designated supervisor in the Boca Branch responsible 
for conducting daily trade order reviews under the WSPs. 
17. Aegis’s WSPs required Aegis RRs to comply with the customer-specific suitability 
requirements set forth in FINRA Rule 2111.  FINRA Rule 2111 states that, when making a 
customer-specific suitability determination, a broker-dealer must consider factors such as age, other 
investments, financial situation and needs, tax status, investment objectives, investment experience, 
investment time horizon, liquidity needs, risk tolerance, and any other information provided by the 
customer.  The WSPs also required that Aegis RRs have reasonable and adequate bases for their 
securities’ recommendations.  Aegis designated supervisors in each of its branch offices to conduct 
daily reviews of trade orders to monitor for Aegis RRs’s compliance with these suitability 
requirements and to conduct additional suitability analyses as needed. 
18. The WSPs additionally emphasized that structured products, including VRSPs, 
“warrant particular care in how they are scrutinized and sold to customers” and that the complexity 
of the products “imposes additional obligations....to supervise their sale.” 
19. In February 2016, Aegis established structured products procedures solely in the 
Melville Branch. These procedures, which were communicated to the Melville Branch supervisors 
and registered representatives by an email marked “High” importance, required Aegis RRs in the 
Melville Branch to take structured products training and review and complete a Structured Products 
Disclosure Form (“Disclosure Forms”) prior to recommending VRSPs to customers.  The Disclosure 
Forms required Aegis RRs to attest that they had “a reasonable basis to believe that the transaction is 
suitable for said client,” and acknowledge that: “(1) the client has been informed, in general terms, 
of various features of Structured Products, such as the liquidity features (and potential illiquidity); 
potential surrender fees; investor suitability standards; and market risk; (2) the client has been 
provided with the appropriate prospectus of the company relating to the shares being purchased; and 
(3) each particular Structured Product, as a whole, is suitable for this client based on the information 
obtained from the client including liquidity needs, liquid net worth, net worth, risk tolerance, 
objectives, tax status, and other reasonable information.”  Supervisors were required to confirm that 
they reviewed the Disclosure Forms as part of their suitability reviews for structured products orders 
in the Melville Branch by signing each form. 
20. The information required to be included in the Disclosure Forms was a compliance 
procedure for registered representatives to confirm that they had made suitability determinations 
prior to recommending a structured product to a customer and for designated supervisors to assess 
whether Aegis RRs had undertaken the requisite suitability determinations. 
21. Subsequently, in December 2016, Aegis added new requirements to the structured 
products procedures that it had established in the Melville Branch in February 2016.  The 
December 2016 structured products procedures, which also were communicated to the Melville 
Branch supervisors and registered representatives by an email marked “High” importance, 
prohibited Aegis RRs from selling structured products to customers who did not have a minimum 
investment objective of Aggressive Growth/Aggressive Income and a minimum risk tolerance of 
High Risk or Maximum Risk. The establishment of the minimum investment objective and risk 
tolerance requirements were compliance procedures intended to ensure that structured products, 
such as the VRSPs, were recommended only to customers for whom they were suitable.  The 
policies also made it easier for supervisors to evaluate, as a threshold matter, whether a transaction 

6 
 
 
 
was unsuitable pursuant to Aegis’s policies and procedures or whether an additional suitability 
determination needed to be made by the Aegis RR. 
22. The December 2016 structured products procedures additionally required Melville 
Branch Aegis RRs and supervisors to sign Structured Products Attestations (“Attestations”) prior to 
recommending structured products. The Attestations, which were substantively identical to the 
Disclosure Forms, required Aegis RRs in the Melville Branch to attest, “that the transaction is 
suitable for each client,” and acknowledge that: “(1) the client has been informed, in general terms, 
of various features of Structured Products, such as the liquidity features (and potential illiquidity); 
potential surrender fees; investor suitability standards; and market risk; (2) the client has been 
provided with the appropriate prospectus of the company relating to the shares being purchased; 
and (3) each particular Structured Product, as a whole, is suitable for this client based on the 
information obtained from the client including liquidity needs, liquid net worth, net worth, risk 
tolerance, objectives, tax status, and other reasonable information.”  Designated supervisors in the 
Melville Branch were required to sign the Attestations to confirm their review of the representations 
made in the Attestation.  
23. In July 2017, Aegis established firm-wide structured products procedures that also 
applied to the Boca Branch. As with the prior promulgations for the Melville Branch, these 
procedures were communicated to all Aegis RRs and supervisors via a “High” importance 
email. These firm-wide structured products procedures mirrored the structured products procedures 
that previously had been established solely for the Melville Branch, and included mandatory 
structured products training for Aegis RRs that, among other things, specifically cautioned, “Don’t 
guarantee anything. Markets might not cooperate.” 
24. The firm-wide structured products procedures further required supervisors to 
review “on a case by case basis for suitability” recommendations of structured products made to 
customers seventy years of age and older.  The age-focused suitability review requirement was a 
compliance procedure by which Aegis’s designated supervisors could determine whether Aegis 
RRs were complying with the customer-specific suitability requirements for sales of structured 
products to senior investors. 
25. Aegis’s WSPs in effect during the relevant time specifically prohibited 
unauthorized trading by Aegis RRs, stating: 
No employee may enter a transaction before contacting the owner of the account ... 
unless the employee has specific written authorization to act on the customer’s 
behalf.  Engaging in unauthorized transactions subjects the employee to regulatory 
and Firm discipline which may include fines and/or termination depending on the 
seriousness of the violations. 
26. In July 2017, Aegis established a firm-wide requirement that certain frequently- 
traded, non-discretionary customer accounts have on file “Active Trading Letters” signed by Aegis 
RRs, designated supervisors, and customers.  Designated supervisors, including Supervisor 2, were 
required to send an Active Trading Letter to each affected customer to confirm they were aware of 
and authorized the activity in their accounts.  The Active Trading Letters stated, in relevant part, 
that customers “have full control” over their accounts and that customers are “aware of all activity in 
[their] account including, but not limited to, commission/markup or markdown/fees, transactions, 
holdings, balance and margin debit, if applicable.”  Aegis also required its designated supervisors to 
send the Active Trading Letters to monitor whether Aegis RRs had obtained required authorizations 
prior to executing trades in certain customers’ non-discretionary accounts. 

7 
 
 
 
Aegis Failed to Develop Reasonable Systems to Implement its Policies and Procedures 
27. Section 15(b)(4)(E) of the Exchange Act provides that the Commission may sanction a 
registered broker-dealer for failing reasonably to supervise, with a view to preventing and detecting 
violations of the federal securities laws, another person subject to its supervision who commits such a 
violation. 
28. Aegis failed to develop reasonable systems to implement its policies and procedures 
in the Melville Branch and Boca Branch with a view to preventing and detecting Aegis RRs’s 
violations of the customer-specific suitability requirements for recommendations of VRSPs, 
unauthorized trading, and misstatements and omissions about the VRSPs. 
29. Aegis failed to develop reasonable systems to implement its policies and procedures 
and to monitor whether Supervisor 1 and Supervisor 2 reasonably conducted reviews of trade orders 
for suitability and reasonably reviewed recommendations of VRSPs to twenty-three Customers who 
were seventy years of age and over, on a case-by-case basis.  Supervisor 1 and Supervisor 2 failed to 
reasonably review, consistent with Aegis’s policies and procedures, trade orders or the related 
recommendations for suitability purposes.  As a result of Aegis’s failure to develop reasonable 
systems to implement these policies and procedures, Aegis failed to prevent and detect the Aegis RRs’s 
unsuitable recommendations to those Customers, including unsuitable recommendations by Aegis RR1 
and Aegis RR2. 
30. Aegis further failed to develop reasonable systems to implement its structured 
products procedures that were in effect in the Melville Branch, beginning in February 2016, and in the 
Boca Branch, beginning in July 2017.  Supervisor 1, who was one of the designated supervisors in 
the Melville Branch, and Supervisor 2 as well as the Aegis RRs, including Aegis RR1 and Aegis 
RR2, failed to follow the procedures for Disclosure Forms and Attestations and to adhere to the 
requirement that structured products could only be sold to Customers with a minimum investment 
objective of Aggressive Growth/Aggressive Income and minimum risk tolerances of High Risk or 
Maximum Risk.  Supervisor 1 and Supervisor 2 also failed to confirm whether the Aegis RRs under 
their respective supervision had completed the Disclosure Forms and Attestations and failed to 
review the Customers’ investment objectives and risk tolerances relating to VRSP orders.  Here, the 
Customers did not have the requisite investment objectives and/or risk tolerances.  If Aegis had 
developed reasonable systems to implement its structured products procedures, Aegis would have 
prevented and detected the Aegis RRs’s unsuitable recommendations, including unsuitable 
recommendations made by Aegis RR1 and Aegis RR2. 
31. Aegis failed to develop reasonable systems to implement its policies and procedures 
prohibiting unauthorized trading.  As discussed above, Aegis’s WSPs prohibited Aegis RRs from 
engaging in unauthorized transactions in non-discretionary customer accounts.  Beginning in July 
2017, Aegis required its designated supervisors, including Supervisor 2, to send Active Trading Letters 
to certain customers with actively traded accounts.  That letter would assist in confirming that the 
customers had “full control” over their accounts and had authorized each transaction in their accounts.  
32. Aegis RR1 did not sign any Active Trading Letters, did not have customers sign such 
letters, and did not obtain written trading authorization from seven Customers.  Supervisor 2 failed to 
confirm whether any Active Trading Letters had been sent by Aegis RR1.  If Aegis had developed 
reasonable systems to implement its policies and procedures concerning unauthorized trading, and 
monitored whether Supervisor 2 was complying with its policies and procedures, Aegis would have 
prevented and detected Aegis RR1’s unauthorized trading. 
33. Aegis also failed to develop reasonable systems to implement its structured products 

8 
 
 
 
training requirements.  As a result, Supervisor 2 failed to confirm whether Aegis RRs in the Boca 
Branch, including Aegis RR1 and Aegis RR2, had taken the structured products training, which 
would have trained them on the characteristics and risks of structured products and the suitability 
considerations and requirements concerning such investments.  Aegis RR1 and Aegis RR2 both 
failed to take the requisite training and made misstatements and omissions to Customers, assuring 
them, in substance, that they were guaranteed to receive their full invested principal at maturity from 
investing in the VRSPs. In fact, as explained in Aegis’s structured products training, the VRSPs 
were not principal protected and, because Customers were at risk of losing some or all of their 
invested principal at maturity, brokers selling these securities should not make any guarantees about 
future performance.   
34. Aegis failed to develop reasonable systems to implement its training requirements 
and, as a result, it failed to prevent and detect the Aegis RRs’s unsuitable recommendations and 
Aegis RR1’s and Aegis RR2’s misstatements and omissions about the VRSPs. 
Aegis Failed to Make and Keep Current Required Broker-Dealer 
Records 
35. Rule 17a-3(a)(17)(i)(B)(1), promulgated under Section 17(a)(1) of the Exchange Act, 
requires that, for each account with a natural person as a customer or owner, a broker-dealer must 
make and keep current a record indicating that it has furnished to each customer or owner, within thirty 
days of the opening of the account and thereafter at intervals no greater than thirty-six months, a copy 
of the account record or an alternate document with all information required by Rule 17a-
3(a)(17)(i)(A), including the customer’s annual income, net worth, and investment objectives. Rule 
17a-3(a)(17)(i)(B)(3), promulgated under Section 17(a)(1) of the Exchange Act, requires that, for each 
account with a natural person as customer or owner, a broker-dealer must make and keep current a 
record indicating that for “each change in the [customer] account’s investment objectives [the broker-
dealer] has furnished to each customer or owner a copy of the updated customer account record or 
alternative document with all information required to be furnished by paragraph (a)(17)(i)(B)(1) . . . on 
or before the 30th day after the date the [broker-dealer] received notice of any change . . . .” 
36. The Commission has described the records required to be kept under Exchange Act 
Rule 17a-3 as “the basic source documents” of a broker-dealer and has emphasized that the rule 
serves as “a keystone of the surveillance of brokers and dealers by our staff and by the securities 
industry’s self-regulatory bodies.” See Statement Regarding the Maintenance of Current Books 
and Records by Brokers and Dealers, Exch. Act Rel. No. 10756 (April 6, 1974); see also Edward 
J. Mawod & Co., 46 S.E.C. 865, 873 n.39 (1977), aff'd, 591 F.2d 588 (10th Cir. 1979). 
37. Aegis WSPs required new customers to submit account opening applications, which 
provided the firm with, among other things, information concerning customers’ investment profiles, 
including their age, risk tolerance, investment objectives, net worth, annual income, investment time 
horizons, and investment experience. The WSPs also required the Aegis RRs to obtain updated 
customer investment profile information when making recommendations. 
38. From January 2015 through May 2019, Aegis failed to make and keep current a 
record indicating that it had furnished to customers copies of their account records or alternate 
documents with the required information at intervals no greater than thirty-six months as required 
pursuant to Rule 17a-3(a)(17)(i)(B)(1). 
 
 

9 
 
 
 
39. Also during this period, Aegis failed to make and keep current a record indicating 
that, for each change in a customer account’s investment objectives, Aegis had furnished to each 
customer a copy of the updated customer account record or alternative document with the required 
information on or before the 30th day after Aegis received notice of any change as required pursuant to 
Rule 17a-3(a)(17)(i)(B)(3). 
Violations and Supervisory Failures 
40. As a result of the foregoing, Aegis willfully violated Sections 17(a)(2) and 17(a)(3) of 
the Securities Act and Exchange Act Section 17(a)(1) and Rules 17a-3(a)(17)(i)(B)(1) and 17a-
3(a)(17)(i)(B)(3) promulgated thereunder.
4
  
41. Also as a result of the foregoing, Aegis failed reasonably to supervise Aegis RRs with 
a view to preventing and detecting their violations of Sections 17(a) of the Securities Act and Section 
10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. 
Disgorgement 
42. The disgorgement and prejudgment interest ordered in paragraph V.C. is consistent 
with equitable principles and does not exceed Respondent’s net profits from its violations and will 
be distributed to harmed investors, if feasible. The Commission will hold funds paid pursuant to 
paragraph V.C. in an account at the United States Treasury pending a decision whether the 
Commission in its discretion will seek to distribute funds.  If a distribution is determined feasible 
and the Commission makes a distribution, upon approval of the distribution final accounting by the 
Commission, any amounts remaining that are infeasible to return to investors, and any amounts 
returned to the Commission in the future that are infeasible to return to investors, may be 
transferred to the general fund of the United States Treasury, subject to Section 21F(g)(3) of the 
Exchange Act.   
IV. 
Aegis’s Remedial Actions 
43. During the Commission staff’s investigation in this matter, Aegis voluntarily 
retained a compliance consultant in January 2021 to review and rewrite its written supervisory 
procedures in all respects, including with regard to suitability determinations, unauthorized trading, 
supervision, record retention, and sales of structured products.  The revised WSPs expressly 
prohibit the firm and its associated persons from purchasing VRSPs for retail customer 
accounts.
5
  Aegis also implemented a new trade order review system with a view to preventing and 
                                                           
4
 “Willfully,” for purposes of imposing relief under Sections 15(b) of the Exchange Act and 203(e) 
of the Advisers Act, “‘means no more than 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)).  There is no requirement that the actor “also be aware that he is 
violating one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965).  The decision in 
The Robare Group, Ltd. v. SEC, which construed the term “willfully” for purposes of a differently 
structured statutory provision, does not alter that standard.  922 F.3d 468, 478-79 (D.C. Cir. 2019) 
(setting forth the showing required to establish that a person has “willfully omit[ted]” material 
information from a required disclosure in violation of Section 207 of the Advisers Act). 
 
5
  VRSPs are structured products that exhibit each of the following risks and characteristics: 
 

10 
 
 
 
detecting, among other things, the kinds of trading misconduct described in this Order.  The 
compliance consultant’s engagement further provides for annual reviews for three years following 
Aegis’s implementation of the revised WSPs, to assess whether the procedures are functioning as 
expected, with written reports to Aegis’s senior management containing any recommendations 
made by the compliance consultant after each annual review. 
44. Aegis no longer employs certain of the individuals whose conduct gave rise to the 
violations charged in this matter, including Aegis RR1, Aegis RR2, and Supervisor 2, has closed its 
Boca Branch where most of the conduct at issue herein took place, and replaced supervisors in its 
Melville Branch, where the remaining misconduct occurred. 
45. Aegis has provided the Commission with a sworn certification by its Chief 
Executive Officer (“CEO”) attesting that the remedial measures described above, with the 
exception of the compliance consultant’s three annual reviews, have been fully implemented. 
46. In determining to accept the Offer, the Commission considered remedial acts 
undertaken by Respondent and the CEO’s sworn certification. 
V. 
In view of the foregoing, the Commission deems it appropriate and in the public interest to 
impose the sanctions agreed to in Aegis’s Offer. 
Accordingly, pursuant to Section 8A of the Securities Act, Sections 15(b) and 21C of the 
Exchange Act, and Section 203(e) of the Advisers Act it is hereby ORDERED that: 
A. Aegis shall cease and desist from committing or causing any violations and any 
future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 17(a)(1) of the 
Exchange Act and Rules 17a-3(a)(17)(i)(B)(1) and 17a-3(a)(17)(i)(B)(3) promulgated thereunder; 
B. Aegis is censured; and 
C. Aegis shall within ten (10) days of the entry of this Order, pay disgorgement of 
$165,828 plus prejudgment interest of $55,037 and a civil money penalty in the amount of 
$2,300,000 to the SEC. The Commission will hold funds paid pursuant to this paragraph in an 
account at the United States Treasury pending a decision whether the Commission, in its discretion, 
will seek to distribute funds or, transfer them to the general fund of the United States Treasury, 
                                                           
•  maturity periods of ten (10) years or more; 
•  a fixed-interest rate period of five (5) years or less, followed by a variable-interest rate 
with a capped, floating coupon payment contingent on the differences, if any, between 
shorter term (e.g., two (2) years) and longer-term (e.g., thirty (30) years) Constant Maturity 
Swap rates and the closing value of one or more underlying reference securities indexes 
such as the S&P 500 and/or the Russell 2000, with the risk of zero percent (0%) periodic 
coupon payments; and 
•  the return of invested principal at maturity is contingent on whether the value of one or 
more underlying reference securities indexes meets or exceeds predetermined barrier levels, 
established by the issuer, at the security’s maturity date, with the risk of loss of some or all 
of invested principal at maturity for the holder of the security; and an inability for the 
beneficial owner of the security to participate in any appreciation in the value of the 
underlying reference securities indexes. 
 
 

11 
 
 
 
subject to Section 21F(g)(3). If timely payment is not made, additional interest shall accrue 
pursuant to SEC Rule of Practice 600. 
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 (for transfer to the general fund of United States Treasury in 
accordance with Exchange Act Section 21F(g)(3))” 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. 
Payment made by check or money order must be accompanied by a cover letter identifying 
Aegis Capital Corp. as 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 Yuri B. Zelinsky, Assistant 
Director, Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E., 
Washington, DC 20549-5041. 
D. 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, Respondent agrees that in any Related Investor Action, it shall 
not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of compensatory 
damages by the amount of any part of Respondent’s payment of a civil penalty in this action (“Penalty 
Offset”). If the court in any Related Investor Action grants such a Penalty Offset, Respondent agrees 
that it shall, within thirty (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 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 Respondent by or on behalf of one or 
more investors based on substantially the same findings in this Order instituted by the Commission in 
this proceeding. 
By the Commission. 
 
 
Vanessa A. Countryman  
Secretary 

UNITED STATES OF AMERICA 

Before 

the 

SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES ACT OF 1933 

Release No. 11086 / July 28, 2022 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 95390 / July 28, 2022 

 

INVESTMENT ADVISERS ACT OF 1940 

Release No. 6076 / July 28, 2022 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-20940 

 

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS 

PURSUANT TO SECTION 8A OF THE 

SECURITIES ACT OF 1933 AND SECTIONS 

15(b) AND 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, AND SECTION 

203(e) OF THE INVESTMENT ADVISERS 

ACT OF 1940, MAKING FINDINGS, AND 

IMPOSING REMEDIAL SANCTIONS AND 

A CEASE-AND-DESIST ORDER 

 
I. 

The Securities and Exchange Commission (the “Commission” or “SEC”) deems it appropriate 

and in the public interest that public administrative and cease-and-desist proceedings be, and hereby 

are, instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) and Sections 

15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”), and Section 203(e) of the 

Investment Advisers Act of 1940 (“Advisers Act”) against Aegis Capital Corp. (“Aegis” or 

“Respondent”). 

II. 

In anticipation of the institution of these proceedings, Respondent has submitted an Offer of 

Settlement (the “Offer”), which the Commission has determined to accept. Solely for the purposes 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 it and the subject matter of these proceedings, which are admitted, 

Respondent consents to the entry of this Order Instituting Administrative and Cease-and-Desist 

Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b) and 21C of the 

Securities Exchange Act of 1934, and Section 203(e) of the Investment Advisers Act of 1940, Making 

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

below. 

 

 

In the Matter of 
 

AEGIS CAPITAL CORP., 

 

Respondent. 



2 

 
 

 

III. 

On the basis of this Order and the Offer, the Commission finds
1 that: 

Summary 

1. These proceedings arise out of unsuitable recommendations of highly-complex 

variable interest rate structured products (“VRSPs”) by certain Aegis Registered Representatives 

(“Aegis RRs”) to forty-eight-retail customers (“Customers”).  It also relates to Aegis’s supervisory 

failures relating to unauthorized trading and material misstatements and omissions made by Aegis 

RRs concerning the VRSPs. 

2. Eleven Aegis RRs in Aegis’s Melville, New York branch office (“Melville 

Branch”) and three Aegis RRs in Aegis’s Boca Raton, Florida branch office (“Boca Branch”) 

recommended VRSPs to forty-eight Customers for whom the investments were unsuitable in light of 

each Customer’s investor profile and account information. 

3. An Aegis RR in the Boca Branch (“Aegis RR1”), who also was a Managing 

Director, made at least 1,000 unauthorized trades in seven Customers’ non-discretionary brokerage 

accounts between September 2015 and May 2019.  Aegis RR1 and another Aegis RR in the Boca 

Branch (“Aegis RR2”) made material misstatements and omissions about the VRSPs to Customers, 

falsely stating, in substance, that the Customers were guaranteed to receive their full invested 

principal at maturity from investing in VRSPs that, in fact, did not guarantee principal protection. 

4. From January 2015 through May 2019, Aegis failed reasonably to implement its: 

(1) Written Supervisory Procedures (“WSPs”); (2) structured products procedures, including the 

training requirements for structured products; and (3) policies and procedures concerning 

unauthorized trading, all with a view to preventing and detecting Aegis RRs’s violations of 

Sections 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 

promulgated thereunder.    

5. In addition, from January 2015 through May 2019, Aegis also failed to create 

certain required records relating to customer accounts. In particular, Aegis failed to make and keep 

current a record, as required by Rule 17a-3(a)(17)(i)(B)(1) under the Exchange Act, indicating that it 

furnished to each customer, at intervals no greater than thirty-six months, a copy of the account record 

or an alternate document with all information required by Rule 17a-3(a)(17)(i)(A) under the Exchange 

Act, including, among other things, the customer’s annual income and net worth, and the account’s 

investment objectives.   

6. Further, Aegis failed to make and keep current a record indicating that, for each 

change in a customer’s account investment objectives, Aegis furnished the customer with a copy of the 

updated account record or alternative document containing the information required by Rule 17a-

3(a)(17)(i)(B)(1) on or before the thirtieth day after receiving notice of a change, as required by Rule 

17a-3(a)(17)(i)(B)(3). 

 

 

                                                           
1 The findings herein are made pursuant to Respondent’s Offer and are not binding on any other 

person or entity in this proceeding or any other proceedings. 

 



3 

 
 

 

Respondent 

7. Aegis, a New York corporation with its principal office in New York, New York, 

has been registered with the Commission as a broker-dealer since 1984 and as an investment 

adviser since 2010.  Aegis acts as an introducing broker to retail and institutional customers 

through twenty-three branch offices located across the United States.2 During the relevant period, 

Aegis at times employed more than 400 registered representatives. 

Variable Interest Rate Structured Products 

8. The VRSPs are complex, structured securities, typically issued by large well-known 

financial institutions, that offer guaranteed periodic fixed-interest rate payments, typically for one to 

three years. After the fixed-interest rate periods end, however, the VRSPs make periodic variable-

interest rate payments, but only if a spread exists in which the long-term Constant Maturity Swap 

(“CMS”) rate is greater than the short-term CMS rate and certain reference securities indexes, such as 

the S&P 500 and/or the Russell 2000 stock indexes, do not decline by more than a specified percentage. 

Consequently, once the fixed-interest rate payment periods end, the Customers are not guaranteed to 

receive any further interest payments from the VRSPs.  The prospectuses for several of the VRSPs at 

issue expressly disclosed the risk of non-payment of interest, stating, for example, that, “there can 

be no assurance that [investors] will receive a contingent interest payment on any interest payment 

date” and that “the securities are not a suitable investment for investors who require regular fixed 

income payments, since the contingent interest payments are variable and may be zero.” 

9. All of the VRSPs are “principal-at-risk” securities, which means that the Customers 

can lose some or all of their invested principal if the VRSPs’ respective reference securities indexes 

fail to perform within pre-determined ranges at maturity.  For example, preliminary prospectuses for 

VRSPs sold to the Customers expressly warned that: “There is no minimum payment at maturity on 

the securities.  Accordingly, investors may lose up to their entire initial investment in the securities.” 

10. Furthermore, the VRSPs typically have maturity periods of fifteen years or more and 

are not certain to trade in a liquid secondary market.  For example, a preliminary prospectus for a 

VRSP offered by Aegis specifically warns, “The securities will not be listed on any securities 

exchange. Therefore, there may be little or no secondary market for the securities…. Even if there is a 

secondary market, it may not provide enough liquidity to allow you to trade or sell the securities 

easily…. Accordingly, you should be willing to hold your securities to maturity.” 

Aegis RRs Made Unsuitable Recommendations of VRSPs 

11. Prior to recommending a security to a customer, a broker-dealer must satisfy its 

customer-specific suitability obligations by making a determination that a particular investment is 

suitable for the customer in light of the customer’s investment profile, as determined by the 

customer’s financial situation and needs, which include, among other things, age, liquidity needs, 

investment objectives, investment time horizon and risk tolerance.  See F.J. Kaufman and Co. of 

Virginia and Frederick J. Kaufman, Jr., Exch. Act Rel. No. 27535, at *3, 50 S.E.C. 164 (Dec. 13, 

1989) (Comm. Op., sustaining NASD findings) (suitability obligation “requires a broker-dealer to 

make a customer-specific determination of suitability and to tailor his recommendations to the 

customer’s financial profile and investment objectives”).   

 

                                                           
2 At all times relevant to this matter, Aegis had over 40,000 retail customers.  The conduct at issue 

in this matter did not affect institutional customers. 



4 

 
 

 

12. Broker-dealers and their associated persons who make unsuitable recommendations 

violate Sections 17(a)(2) and 17(a)(3) of the Securities Act. 3  See, e.g., Integral Financial, LLC and 

Weiming “Frank” Ho, Exch. Act Rel. No. 92537 (July 30, 2021) (settled order finding that a broker 

and its principal, through the firm’s registered representatives’ recommendations of VRSPs in 

violation of the customer-specific suitability requirements, failed reasonably to supervise and 

violated Sections 17(a)(2) and 17(a)(3) of the Securities Act); Herbert J. Sims and Co., Inc., Exch. 

Act Rel. No. 92538 (July 30, 2021) (settled order finding that the broker-dealer failed reasonably to 

supervise its registered representatives and violated Sections 17(a)(2) and 17(a)(3) of the Securities 

Act as a result of its registered representatives’ recommendations of VRSPs in violation of the 

customer-specific suitability requirements). 

13. From January 2015 through May 2019, fourteen Aegis RRs recommended VRSPs to 

forty-eight Customers for whom the securities were unsuitable based on each Customer’s financial 

situation and needs, as reflected by their risk tolerance, investment objectives, age, investment 

experience, liquidity needs, and investment time horizons. In July 2017, Aegis established 

procedures expressly prohibiting the sale of structured products, such as VRSPs, to customers who 

did not have “High” or “Maximum” risk tolerances and an investment objective of “Aggressive 

Growth / Aggressive Income” or “Speculation”.  None of these Customers had the requisite risk 

tolerances.  The Customers, variously, had minimum, low, or moderate risk tolerances, along with 

investment objectives of preservation of principal/income, balanced growth, growth, or aggressive 

growth/aggressive income; moderate or higher liquidity needs; and investment time horizons of less 

than fifteen years. They also sought periodic interest payments from their investments and to 

recover their entire invested principal at maturity.  As discussed above, the VRSPs are structured 

securities with long-term maturity periods, which do not guarantee periodic interest payments 

following the fixed-interest rate period, do not guarantee return of principal at maturity, and provide 

no assurance of liquidity.   

14. The information concerning the VRSPs, as well as the Customers’ investor profile 

information, were available for the Aegis RRs to use in determining whether the VRSPs were 

suitable investments for the Customers.  Accordingly, the Aegis RRs knew, were reckless in not 

knowing, or should have known that in light of the Customers’ respective financial situations and 

needs, investor profiles, and risk tolerances, the VRSPs were unsuitable for the Customers at the 

time that the Aegis RRs, including Aegis RR1 and Aegis RR2, recommended the investments. 

Aegis’s Policies and Procedures 

15. From January 2015 through February 2018, Aegis assigned responsibility for 

implementing Aegis’s policies and procedures in the Melville Branch, including the firm’s WSPs 

and structured products procedures, to, among others in Melville, the Branch Manager in the 

Melville Branch (“Supervisor 1”).  During this period, Supervisor 1 was also the designated 

supervisor in the Melville Branch responsible for conducting daily trade order reviews under the 

WSPs. 

 

                                                           
3 A violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act does not require scienter and 

may rest on a finding of negligence.  See Aaron v. SEC, 446 U.S. 680, 701–02 (1980); see also 

SEC v. Wey, 246 F. Supp. 3d 894, 912 (S.D.N.Y. 2017) (“Unlike claims brought under Section 

10(b), Rule 10b–5, and Section 17(a)(1), the SEC need only allege that a defendant acted with 

negligence in order to plead violations of Sections 17(a)(2) and 17(a)(3).”). 



5 

 
 

 

16. From June 2016 through May 2019, Aegis assigned responsibility for 

implementing Aegis’s policies and procedures in the Boca Branch, including the firm’s WSPs and 

structured products procedures, to the Branch Manager in the Boca Branch (“Supervisor 2”). 

During this period, Supervisor 2 was also the designated supervisor in the Boca Branch responsible 

for conducting daily trade order reviews under the WSPs. 

17. Aegis’s WSPs required Aegis RRs to comply with the customer-specific suitability 

requirements set forth in FINRA Rule 2111.  FINRA Rule 2111 states that, when making a 

customer-specific suitability determination, a broker-dealer must consider factors such as age, other 

investments, financial situation and needs, tax status, investment objectives, investment experience, 

investment time horizon, liquidity needs, risk tolerance, and any other information provided by the 

customer.  The WSPs also required that Aegis RRs have reasonable and adequate bases for their 

securities’ recommendations.  Aegis designated supervisors in each of its branch offices to conduct 

daily reviews of trade orders to monitor for Aegis RRs’s compliance with these suitability 

requirements and to conduct additional suitability analyses as needed. 

18. The WSPs additionally emphasized that structured products, including VRSPs, 

“warrant particular care in how they are scrutinized and sold to customers” and that the complexity 

of the products “imposes additional obligations….to supervise their sale.” 

19. In February 2016, Aegis established structured products procedures solely in the 

Melville Branch. These procedures, which were communicated to the Melville Branch supervisors 

and registered representatives by an email marked “High” importance, required Aegis RRs in the 

Melville Branch to take structured products training and review and complete a Structured Products 

Disclosure Form (“Disclosure Forms”) prior to recommending VRSPs to customers.  The Disclosure 

Forms required Aegis RRs to attest that they had “a reasonable basis to believe that the transaction is 

suitable for said client,” and acknowledge that: “(1) the client has been informed, in general terms, 

of various features of Structured Products, such as the liquidity features (and potential illiquidity); 

potential surrender fees; investor suitability standards; and market risk; (2) the client has been 

provided with the appropriate prospectus of the company relating to the shares being purchased; and 

(3) each particular Structured Product, as a whole, is suitable for this client based on the information 

obtained from the client including liquidity needs, liquid net worth, net worth, risk tolerance, 

objectives, tax status, and other reasonable information.”  Supervisors were required to confirm that 

they reviewed the Disclosure Forms as part of their suitability reviews for structured products orders 

in the Melville Branch by signing each form. 

20. The information required to be included in the Disclosure Forms was a compliance 

procedure for registered representatives to confirm that they had made suitability determinations 

prior to recommending a structured product to a customer and for designated supervisors to assess 

whether Aegis RRs had undertaken the requisite suitability determinations. 

21. Subsequently, in December 2016, Aegis added new requirements to the structured 

products procedures that it had established in the Melville Branch in February 2016.  The 

December 2016 structured products procedures, which also were communicated to the Melville 

Branch supervisors and registered representatives by an email marked “High” importance, 

prohibited Aegis RRs from selling structured products to customers who did not have a minimum 

investment objective of Aggressive Growth/Aggressive Income and a minimum risk tolerance of 

High Risk or Maximum Risk. The establishment of the minimum investment objective and risk 

tolerance requirements were compliance procedures intended to ensure that structured products, 

such as the VRSPs, were recommended only to customers for whom they were suitable.  The 

policies also made it easier for supervisors to evaluate, as a threshold matter, whether a transaction 



6 

 
 

 

was unsuitable pursuant to Aegis’s policies and procedures or whether an additional suitability 

determination needed to be made by the Aegis RR. 

22. The December 2016 structured products procedures additionally required Melville 

Branch Aegis RRs and supervisors to sign Structured Products Attestations (“Attestations”) prior to 

recommending structured products. The Attestations, which were substantively identical to the 

Disclosure Forms, required Aegis RRs in the Melville Branch to attest, “that the transaction is 

suitable for each client,” and acknowledge that: “(1) the client has been informed, in general terms, 

of various features of Structured Products, such as the liquidity features (and potential illiquidity); 

potential surrender fees; investor suitability standards; and market risk; (2) the client has been 

provided with the appropriate prospectus of the company relating to the shares being purchased; 

and (3) each particular Structured Product, as a whole, is suitable for this client based on the 

information obtained from the client including liquidity needs, liquid net worth, net worth, risk 

tolerance, objectives, tax status, and other reasonable information.”  Designated supervisors in the 

Melville Branch were required to sign the Attestations to confirm their review of the representations 

made in the Attestation.  

23. In July 2017, Aegis established firm-wide structured products procedures that also 

applied to the Boca Branch. As with the prior promulgations for the Melville Branch, these 

procedures were communicated to all Aegis RRs and supervisors via a “High” importance 

email. These firm-wide structured products procedures mirrored the structured products procedures 

that previously had been established solely for the Melville Branch, and included mandatory 

structured products training for Aegis RRs that, among other things, specifically cautioned, “Don’t 

guarantee anything. Markets might not cooperate.” 

24. The firm-wide structured products procedures further required supervisors to 

review “on a case by case basis for suitability” recommendations of structured products made to 

customers seventy years of age and older.  The age-focused suitability review requirement was a 

compliance procedure by which Aegis’s designated supervisors could determine whether Aegis 

RRs were complying with the customer-specific suitability requirements for sales of structured 

products to senior investors. 

25. Aegis’s WSPs in effect during the relevant time specifically prohibited 

unauthorized trading by Aegis RRs, stating: 

No employee may enter a transaction before contacting the owner of the account … 

unless the employee has specific written authorization to act on the customer’s 

behalf.  Engaging in unauthorized transactions subjects the employee to regulatory 

and Firm discipline which may include fines and/or termination depending on the 

seriousness of the violations. 

26. In July 2017, Aegis established a firm-wide requirement that certain frequently- 

traded, non-discretionary customer accounts have on file “Active Trading Letters” signed by Aegis 

RRs, designated supervisors, and customers.  Designated supervisors, including Supervisor 2, were 

required to send an Active Trading Letter to each affected customer to confirm they were aware of 

and authorized the activity in their accounts.  The Active Trading Letters stated, in relevant part, 

that customers “have full control” over their accounts and that customers are “aware of all activity in 

[their] account including, but not limited to, commission/markup or markdown/fees, transactions, 

holdings, balance and margin debit, if applicable.”  Aegis also required its designated supervisors to 

send the Active Trading Letters to monitor whether Aegis RRs had obtained required authorizations 

prior to executing trades in certain customers’ non-discretionary accounts. 



7 

 
 

 

Aegis Failed to Develop Reasonable Systems to Implement its Policies and Procedures 

27. Section 15(b)(4)(E) of the Exchange Act provides that the Commission may sanction a 

registered broker-dealer for failing reasonably to supervise, with a view to preventing and detecting 

violations of the federal securities laws, another person subject to its supervision who commits such a 

violation. 

28. Aegis failed to develop reasonable systems to implement its policies and procedures 

in the Melville Branch and Boca Branch with a view to preventing and detecting Aegis RRs’s 

violations of the customer-specific suitability requirements for recommendations of VRSPs, 

unauthorized trading, and misstatements and omissions about the VRSPs. 

29. Aegis failed to develop reasonable systems to implement its policies and procedures 

and to monitor whether Supervisor 1 and Supervisor 2 reasonably conducted reviews of trade orders 

for suitability and reasonably reviewed recommendations of VRSPs to twenty-three Customers who 

were seventy years of age and over, on a case-by-case basis.  Supervisor 1 and Supervisor 2 failed to 

reasonably review, consistent with Aegis’s policies and procedures, trade orders or the related 

recommendations for suitability purposes.  As a result of Aegis’s failure to develop reasonable 

systems to implement these policies and procedures, Aegis failed to prevent and detect the Aegis RRs’s 

unsuitable recommendations to those Customers, including unsuitable recommendations by Aegis RR1 

and Aegis RR2. 

30. Aegis further failed to develop reasonable systems to implement its structured 

products procedures that were in effect in the Melville Branch, beginning in February 2016, and in the 

Boca Branch, beginning in July 2017.  Supervisor 1, who was one of the designated supervisors in 

the Melville Branch, and Supervisor 2 as well as the Aegis RRs, including Aegis RR1 and Aegis 

RR2, failed to follow the procedures for Disclosure Forms and Attestations and to adhere to the 

requirement that structured products could only be sold to Customers with a minimum investment 

objective of Aggressive Growth/Aggressive Income and minimum risk tolerances of High Risk or 

Maximum Risk.  Supervisor 1 and Supervisor 2 also failed to confirm whether the Aegis RRs under 

their respective supervision had completed the Disclosure Forms and Attestations and failed to 

review the Customers’ investment objectives and risk tolerances relating to VRSP orders.  Here, the 

Customers did not have the requisite investment objectives and/or risk tolerances.  If Aegis had 

developed reasonable systems to implement its structured products procedures, Aegis would have 

prevented and detected the Aegis RRs’s unsuitable recommendations, including unsuitable 

recommendations made by Aegis RR1 and Aegis RR2. 

31. Aegis failed to develop reasonable systems to implement its policies and procedures 

prohibiting unauthorized trading.  As discussed above, Aegis’s WSPs prohibited Aegis RRs from 

engaging in unauthorized transactions in non-discretionary customer accounts.  Beginning in July 

2017, Aegis required its designated supervisors, including Supervisor 2, to send Active Trading Letters 

to certain customers with actively traded accounts.  That letter would assist in confirming that the 

customers had “full control” over their accounts and had authorized each transaction in their accounts.  

32. Aegis RR1 did not sign any Active Trading Letters, did not have customers sign such 

letters, and did not obtain written trading authorization from seven Customers.  Supervisor 2 failed to 

confirm whether any Active Trading Letters had been sent by Aegis RR1.  If Aegis had developed 

reasonable systems to implement its policies and procedures concerning unauthorized trading, and 

monitored whether Supervisor 2 was complying with its policies and procedures, Aegis would have 

prevented and detected Aegis RR1’s unauthorized trading. 

33. Aegis also failed to develop reasonable systems to implement its structured products 



8 

 
 

 

training requirements.  As a result, Supervisor 2 failed to confirm whether Aegis RRs in the Boca 

Branch, including Aegis RR1 and Aegis RR2, had taken the structured products training, which 

would have trained them on the characteristics and risks of structured products and the suitability 

considerations and requirements concerning such investments.  Aegis RR1 and Aegis RR2 both 

failed to take the requisite training and made misstatements and omissions to Customers, assuring 

them, in substance, that they were guaranteed to receive their full invested principal at maturity from 

investing in the VRSPs. In fact, as explained in Aegis’s structured products training, the VRSPs 

were not principal protected and, because Customers were at risk of losing some or all of their 

invested principal at maturity, brokers selling these securities should not make any guarantees about 

future performance.   

34. Aegis failed to develop reasonable systems to implement its training requirements 

and, as a result, it failed to prevent and detect the Aegis RRs’s unsuitable recommendations and 

Aegis RR1’s and Aegis RR2’s misstatements and omissions about the VRSPs. 

Aegis Failed to Make and Keep Current Required Broker-Dealer 

Records 

35. Rule 17a-3(a)(17)(i)(B)(1), promulgated under Section 17(a)(1) of the Exchange Act, 

requires that, for each account with a natural person as a customer or owner, a broker-dealer must 

make and keep current a record indicating that it has furnished to each customer or owner, within thirty 

days of the opening of the account and thereafter at intervals no greater than thirty-six months, a copy 

of the account record or an alternate document with all information required by Rule 17a-

3(a)(17)(i)(A), including the customer’s annual income, net worth, and investment objectives. Rule 

17a-3(a)(17)(i)(B)(3), promulgated under Section 17(a)(1) of the Exchange Act, requires that, for each 

account with a natural person as customer or owner, a broker-dealer must make and keep current a 

record indicating that for “each change in the [customer] account’s investment objectives [the broker-

dealer] has furnished to each customer or owner a copy of the updated customer account record or 

alternative document with all information required to be furnished by paragraph (a)(17)(i)(B)(1) . . . on 

or before the 30th day after the date the [broker-dealer] received notice of any change . . . .” 

36. The Commission has described the records required to be kept under Exchange Act 

Rule 17a-3 as “the basic source documents” of a broker-dealer and has emphasized that the rule 

serves as “a keystone of the surveillance of brokers and dealers by our staff and by the securities 

industry’s self-regulatory bodies.” See Statement Regarding the Maintenance of Current Books 

and Records by Brokers and Dealers, Exch. Act Rel. No. 10756 (April 6, 1974); see also Edward 

J. Mawod & Co., 46 S.E.C. 865, 873 n.39 (1977), aff'd, 591 F.2d 588 (10th Cir. 1979). 

37. Aegis WSPs required new customers to submit account opening applications, which 

provided the firm with, among other things, information concerning customers’ investment profiles, 

including their age, risk tolerance, investment objectives, net worth, annual income, investment time 

horizons, and investment experience. The WSPs also required the Aegis RRs to obtain updated 

customer investment profile information when making recommendations. 

38. From January 2015 through May 2019, Aegis failed to make and keep current a 

record indicating that it had furnished to customers copies of their account records or alternate 

documents with the required information at intervals no greater than thirty-six months as required 

pursuant to Rule 17a-3(a)(17)(i)(B)(1). 

 

 



9 

 
 

 

39. Also during this period, Aegis failed to make and keep current a record indicating 

that, for each change in a customer account’s investment objectives, Aegis had furnished to each 

customer a copy of the updated customer account record or alternative document with the required 

information on or before the 30th day after Aegis received notice of any change as required pursuant to 

Rule 17a-3(a)(17)(i)(B)(3). 

Violations and Supervisory Failures 

40. As a result of the foregoing, Aegis willfully violated Sections 17(a)(2) and 17(a)(3) of 

the Securities Act and Exchange Act Section 17(a)(1) and Rules 17a-3(a)(17)(i)(B)(1) and 17a-

3(a)(17)(i)(B)(3) promulgated thereunder.4  

41. Also as a result of the foregoing, Aegis failed reasonably to supervise Aegis RRs with 

a view to preventing and detecting their violations of Sections 17(a) of the Securities Act and Section 

10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. 

Disgorgement 

42. The disgorgement and prejudgment interest ordered in paragraph V.C. is consistent 

with equitable principles and does not exceed Respondent’s net profits from its violations and will 

be distributed to harmed investors, if feasible. The Commission will hold funds paid pursuant to 

paragraph V.C. in an account at the United States Treasury pending a decision whether the 

Commission in its discretion will seek to distribute funds.  If a distribution is determined feasible 

and the Commission makes a distribution, upon approval of the distribution final accounting by the 

Commission, any amounts remaining that are infeasible to return to investors, and any amounts 

returned to the Commission in the future that are infeasible to return to investors, may be 

transferred to the general fund of the United States Treasury, subject to Section 21F(g)(3) of the 

Exchange Act.   

IV. 

Aegis’s Remedial Actions 

43. During the Commission staff’s investigation in this matter, Aegis voluntarily 

retained a compliance consultant in January 2021 to review and rewrite its written supervisory 

procedures in all respects, including with regard to suitability determinations, unauthorized trading, 

supervision, record retention, and sales of structured products.  The revised WSPs expressly 

prohibit the firm and its associated persons from purchasing VRSPs for retail customer 

accounts.5  Aegis also implemented a new trade order review system with a view to preventing and 

                                                           
4 “Willfully,” for purposes of imposing relief under Sections 15(b) of the Exchange Act and 203(e) 

of the Advisers Act, “‘means no more than 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)).  There is no requirement that the actor “also be aware that he is 

violating one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965).  The decision in 

The Robare Group, Ltd. v. SEC, which construed the term “willfully” for purposes of a differently 

structured statutory provision, does not alter that standard.  922 F.3d 468, 478-79 (D.C. Cir. 2019) 

(setting forth the showing required to establish that a person has “willfully omit[ted]” material 

information from a required disclosure in violation of Section 207 of the Advisers Act). 
 
5  VRSPs are structured products that exhibit each of the following risks and characteristics: 

 



10 

 
 

 

detecting, among other things, the kinds of trading misconduct described in this Order.  The 

compliance consultant’s engagement further provides for annual reviews for three years following 

Aegis’s implementation of the revised WSPs, to assess whether the procedures are functioning as 

expected, with written reports to Aegis’s senior management containing any recommendations 

made by the compliance consultant after each annual review. 

44. Aegis no longer employs certain of the individuals whose conduct gave rise to the 

violations charged in this matter, including Aegis RR1, Aegis RR2, and Supervisor 2, has closed its 

Boca Branch where most of the conduct at issue herein took place, and replaced supervisors in its 

Melville Branch, where the remaining misconduct occurred. 

45. Aegis has provided the Commission with a sworn certification by its Chief 

Executive Officer (“CEO”) attesting that the remedial measures described above, with the 

exception of the compliance consultant’s three annual reviews, have been fully implemented. 

46. In determining to accept the Offer, the Commission considered remedial acts 

undertaken by Respondent and the CEO’s sworn certification. 

V. 

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

impose the sanctions agreed to in Aegis’s Offer. 

Accordingly, pursuant to Section 8A of the Securities Act, Sections 15(b) and 21C of the 

Exchange Act, and Section 203(e) of the Advisers Act it is hereby ORDERED that: 

A. Aegis shall cease and desist from committing or causing any violations and any 

future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 17(a)(1) of the 

Exchange Act and Rules 17a-3(a)(17)(i)(B)(1) and 17a-3(a)(17)(i)(B)(3) promulgated thereunder; 

B. Aegis is censured; and 

C. Aegis shall within ten (10) days of the entry of this Order, pay disgorgement of 

$165,828 plus prejudgment interest of $55,037 and a civil money penalty in the amount of 

$2,300,000 to the SEC. The Commission will hold funds paid pursuant to this paragraph in an 

account at the United States Treasury pending a decision whether the Commission, in its discretion, 

will seek to distribute funds or, transfer them to the general fund of the United States Treasury, 

                                                           

•  maturity periods of ten (10) years or more; 

•  a fixed-interest rate period of five (5) years or less, followed by a variable-interest rate 

with a capped, floating coupon payment contingent on the differences, if any, between 

shorter term (e.g., two (2) years) and longer-term (e.g., thirty (30) years) Constant Maturity 

Swap rates and the closing value of one or more underlying reference securities indexes 

such as the S&P 500 and/or the Russell 2000, with the risk of zero percent (0%) periodic 

coupon payments; and 

•  the return of invested principal at maturity is contingent on whether the value of one or 

more underlying reference securities indexes meets or exceeds predetermined barrier levels, 

established by the issuer, at the security’s maturity date, with the risk of loss of some or all 

of invested principal at maturity for the holder of the security; and an inability for the 

beneficial owner of the security to participate in any appreciation in the value of the 

underlying reference securities indexes. 

 
 



11 

 
 

 

subject to Section 21F(g)(3). If timely payment is not made, additional interest shall accrue 

pursuant to SEC Rule of Practice 600. 

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 (for transfer to the general fund of United States Treasury in 

accordance with Exchange Act Section 21F(g)(3))” 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. 

Payment made by check or money order must be accompanied by a cover letter identifying 

Aegis Capital Corp. as 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 Yuri B. Zelinsky, Assistant 

Director, Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E., 

Washington, DC 20549-5041. 

D. 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, Respondent agrees that in any Related Investor Action, it shall 

not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of compensatory 

damages by the amount of any part of Respondent’s payment of a civil penalty in this action (“Penalty 

Offset”). If the court in any Related Investor Action grants such a Penalty Offset, Respondent agrees 

that it shall, within thirty (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 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 Respondent by or on behalf of one or 

more investors based on substantially the same findings in this Order instituted by the Commission in 

this proceeding. 

By the Commission. 

 

 
Vanessa A. Countryman  

Secretary 

http://www.sec.gov/about/offices/ofm.htm%3B

	II.
	III.
	Respondent
	V.