SEC Fines Aegis Capital $2.3M Over Allegedly Unsuitable Variable Interest Rate Structured Product Sales

Aegis Brokers in Melville, NY and Boca Raton, FL Allegedly Unsuitably Recommended VRSPs to 48 Customers, Including Elderly Investors 

In July 2022, the US Securities and Exchange Commission (SEC) filed civil charges against Aegis Capital Corp., former Managing Director Alan Zelig Appelbaum, and ex-broker Paul Francis Gallivan. They are charged for allegedly unsuitably recommending variable interest rate structured products (VRSPs) to retail customers. These complex, structured products are usually issued only by well-known financial institutions.

According to the Commission’s settled administrative proceeding against Aegis, fourteen of its brokers from its Melville, New York and Boca Raton, Florida branches recommended VRSPs to four dozen customers for whom this type of investment was unsuitable. Without denying or admitting to the regulator’s findings, Aegis will pay a $2.3M penalty and $220K disgorgement plus prejudgment interest.

Our alternative investment loss attorneys are speaking with investors who experienced investment fraud in variable interest rate structured products (VRSPs) that an Aegis broker may have unsuitably recommended. Call Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlawyers.com) so that we connect you with our highly trained investment loss lawyers to discuss your legal options.

What Are Variable Interest Rate Structured Products?

These complex securities offer investors guaranteed fixed-interest payments, usually for one to three years. After the fixed-interest rate period, these investments will only make periodic payments if there is a spread involving a long-term Constant Maturity Swap (CMS) rate. For guaranteed further payments to the buyers, the CMS rate has to be more than the short-term CMS rate, and certain securities indexes shouldn’t go down beyond a certain percentage.

As VRSPs are risky, they may result in customers losing some or all of their principal if referenced securities indexes don’t perform within predetermined ranges upon maturity. These products are not for investors needing regular fixed-income payments. They are highly illiquid, with maturity periods of fifteen years or longer. There is no guarantee that they can be sold on a secondary market. 

Ex-Aegis Managing Director Also Accused of Unauthorized Trading

Alan Applebaum, allegedly unsuitably recommended VRSPs to seven customers with moderate risk tolerance levels. Many were elderly investors with investment time horizons that were not in line with the maturity dates of the VRSPs. One of these older customers allegedly lost $200K from these investment scams. 

According to Applebaum’s CRD, he has nineteen disclosures on record. Aegis allowed him to resign in 2021 after allegedly exercising discretion in a customer’s account without the latter’s permission. 

More than ten investor claims involving Applebaum have resulted in settlements or awards, including, most recently:

May 2021: An unsuitability case concluded with a $280K settlement.

September 2019: An unsuitability and unauthorized transaction case settled for $1.65M.

Misrepresentations Alleged Against Former Boca Raton Broker Paul Gallivan

In settled administrative proceedings involving Gallivan, the SEC found that he allegedly unsuitably recommended VRSPs to four customers. This included purportedly making materially false and misleading statements to them. 

The SEC said the ex-Boca Raton, Florida financial advisor, is also allegedly engaged in unauthorized trading. 

Without denying or admitting to the SEC’s findings, Gallivan has since agreed to pay disgorgement and prejudgment interest of nearly $30K and a $25K civil penalty. He also consented to a year-long suspension and an investment company prohibition.

The ex-Aegis broker worked for twelve years in the industry. Gallivan’s CRD reports seven disclosures. Aside from the SEC’s civil case over VRSPs, the remaining disclosures appear to be related to his finances. 

Skilled Structured Products Attorneys 

VRSPs may be unsuitable for many retail customers, retirees, and other conservative or inexperienced investors. To speak with our Florida variable interest rate structured products lawyers, call (813) 669-4133. You can also reach our New York structured products attorneys or securities lawyers at (716) 402-1521. Throughout the US, contact SSEK Law Firm at (866) 914-2719.