Federal Appeals Court Upholds SEC Ban on Broker-Dealer Principal for Failing to Prevent Churning and Excessive Trading

In July 2013, the U.S. Securities and Exchange Commission (“SEC”) issued a lifetime ban upon Carl Birkelbach, the founder and principal of Birkelbach Investment Securities (headquartered in Chicago, Illinois), which prevents him from participating in any working capacity in the securities industry.  Mr. Birkelbach appealed the SEC’s ban, claiming in part that the SEC exceeded its authority in imposing such a severe penalty upon him.  Earlier this month, the U.S. Court of Appeals for the Seventh Circuit in Chicago denied his appeal and upheld the SEC ban, stating that Mr. Birkelbach’s offenses were sufficiently egregious to warrant the sanction imposed by the SEC.

As the head of Birkelbach Investment Securities, Mr. Birkelbach was required to supervise the trading activities of the company’s registered representatives, including William Murphy.  According to the SEC, Mr. Murphy engaged for years in unauthorized conduct, steering clients into unsuitable investments, and churning in client accounts — all of which Mr. Birkelbach was purportedly aware of.  Despite Mr. Birkelbach’s alleged knowledge of the wrongdoing taking place at his company, he imposed no discipline upon Mr. Murphy, never disapproved of a single trade by Murphy, and never contacted the most egregiously harmed customer to discuss the high volume of trading in the customer’s account.  During the years in question, the revenues from Mr. Murphy’s trading in that account, according to SEC calculations, represented nearly 20% of Birkelbach Investment Securities’ total revenue.  Even when the Financial Industry Regulatory Authority (FINRA) requested that Mr. Birkelbach place Mr. Murphy on heightened supervision, Mr. Birkelbach failed to comply.  As a result, FINRA imposed upon Mr. Birkelbach a punishment that ultimately became a lifetime ban from the securities industry in any capacity, which the SEC subsequently affirmed in its July 2013 ruling.

If you have questions about your legal rights, or have been the victim of investment fraud, please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or Toll Free at (800) 975-4345.