Two broker-dealers and two New York-based entities have been charged by The Securities and Exchange Commission (SEC) with operating as unregistered broker-dealers. The SEC’s complaint states that K. Galvani and Stuart A. Jeffery facilitated more than $1.2bn of securities trading, primarily in penny stocks.

According to the complaint, Galvani and Jeffery created GEL Direct Trust, which they managed through its trustee, GEL Direct, LLC. However, since both were registered brokers at a registered broker-dealer unconnected with this case, the GEL entities were not registered with the SEC as broker-dealers.

Galvani and Jeffery provided services to approximately 60 customers in at least 19,000 securities trades, from 2019 through at least May 2022, through the GEL entities.

$12m in compensation

The brokerage services claimed to have been provided included taking possession of customer securities, directing trades to executing brokers, facilitating trade settlements, and disbursing trading proceeds to customers. In exchange, the defendants allegedly received at least $12m in transaction-based and other compensation for their services.

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

The complaint was filed in U.S. District Court for the Southern District of New York, and charges Galvani, Jeffery, GEL Direct Trust, and GEL Direct, LLC with violating the broker-dealer registration requirement of Section 15(a) of the Securities Exchange Act of 1934. It also charges Galvani and Jeffery as “control persons” of the GEL entities under Section 20(a) of the Exchange Act.