The SEC alleges that 10 brokers, who worked for McGinn Smith & Co, recommended unregistered investment products in a scheme that made material misrepresentations and omissions to their customers. 

In addition, the SEC alleges that the registered representatives ignored red flags that should have led them to conduct more due diligence into the securities they were recommending to their customers.

The scheme victimized approximately 750 investors and led to $80 million in investor losses, according to the SEC.

The agency filed an emergency action in 2010 to halt the scheme at McGinn Smith & Co and freeze the assets of the firm and its owners, Timothy McGinn and David Smith, who were later charged by the US Attorney’s Office and found guilty.

Andrew Guzzetti, managing director of the from 2004 to 2009, is accused of failing to properly supervise the brokers and of failing to take any action to investigate the offerings, despite the knowledge of red flags.

The SEC further alleges that nine of the brokers charged continued to sell McGinn Smith notes even after being told that customers placed in some of the firm’s offerings could only be redeemed if a replacement customer was found, which was contrary to the offering documents.  

“As securities professionals, these brokers had an important duty to determine whether the securities they recommended to customers were suitable, especially when red flags were apparent. These registered representatives performed inadequate due diligence and failed to fulfill their duties,” said Andrew Calamari, director of the SEC’s New York regional office.