Alan Appelbaum, former managing director and head of Aegis Capital Corp.’s municipal bond desk, has agreed to settle Securities and Exchange Commission charges that he disregarded his obligations as a broker-dealer and violated antifraud provisions in his recommendation of certain variable interest rate structured products to seven investors.
Without admitting or denying the findings, Applebaum, 75, agreed to be barred from the industry but is able to apply for reentry after ten years.
But Appelbaum was not alone in his recommendations. The Commission also settled an administrative proceeding against Aegis, “finding that fourteen Aegis brokers recommended VRSPs to forty-eight customers for whom the VRSPs were unsuitable in light of the customers’ financial situations and needs, as reflected by their risk tolerance, investment objectives, age, investment experience, liquidity needs, and investment time horizon,” the SEC said.
Former Aegis broker Paul Gallivan was also implicated, with the Commission finding that he made unsuitable recommendations of VRSPs to four customers and made materially false and misleading statements about the investments. Without admitting or denying the findings, he agreed to a cease and desist as well as pay disgorgement and prejudgment interest of $29,973, a civil penalty of $25,000 and twelve month bar on association with any investment company.
Appelbaum worked for Aegis from 2015 to 2021, serving as managing director and head of the firm’s municipal bond desk for the first three years until he became co-head of the firm’s fixed-income desk. During a two year period between 2017 and 2019, he made over 140 recommendations of the VRSPs to seven retail customers who had a moderate risk tolerance.
“Appelbaum knew, was reckless in not knowing, or should have known that these securities were unsuitable for those customers,” the SEC said.
He also made material misrepresentations in omitting the material fact that the investments were unsuitable to the seven retail investor’s financial needs, and also falsely told multiple customers that the VRSPs would pay off “at par” when they reach maturity.
Appelbaum also made unauthorized trades on the investors’ accounts and collected at least $1 million in compensation for those unauthorized trades, while his customers’ incurred significant losses, including one who lost over $1 million and another who lost $200,000.
He continued to make material misstatements when some of the customers began complaining of the enormous drops in value the investments were being subject to, assuring them that these were conservative investments.
Appelbaum is also no stranger to disciplinary action on behalf of securities regulators. At least 14 of Appelbaum’s customers have filed FINRA or National Association of Securities Dealers arbitration claims against him. He was also censured by the Commission in February 1982 for aiding and abetting and in July 2006, the State of New Hampshire’s Bureau of Securities Regulation fined him and obtained a cease and desist order against him for servicing the brokerage accounts of New Hampshire residents while not being licensed to sell securities in New Hampshire.
Aegis did not respond to a request for comment.