SEC Sanctions Aegis Capital $2.3 million and Paul Gallivan $25,000 in Civil Penalties for Industry Violations Related to Structured Products

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Updated on: August 1, 2022
SEC Sanctioned Aegis in Cease and Desist Order

On July 28, 2022, Aegis agreed to SEC sanctions in a  cease-and-desist order issued as a result of a settled administrative proceeding. The Securities and Exchange Commission (“SEC”) previously filed a complaint against Aegis related to risky, highly complex variable interest rate structured products. The complaint alleged numerous supervisory failures relating to unauthorized trading and material misstatements and omissions made by Aegis brokers of the products. The complaint also alleged that Aegis failed to create and keep required records current relating to the customer’s investment objectives and risk tolerance specific to a customer’s circumstances.

During the settled administrative proceeding, the SEC found that 14 of Aegis’s brokers made unsuitable recommendations of the structured products to 48 customers. Aegis also violated the Books and Records Act and failed to reasonably supervise its brokers to identify violations.  The sanctions against Aegis include:

  • a $2.3 million dollar civil penalty;
  • $165,828 for disgorgement; and
  • $55,037 for prejudgment interest.
SEC Sanctioned Paul Gallivan in Cease and Desist Order

Paul Gallivan was also the subject of a related SEC complaint. He was found by the SEC to have made unsuitable recommendations of the highly risky, structured products to four customers. He also was found to have made materially false and misleading representations to investors regarding the products. As such, Paul Gallivan has agreed to SEC sanctions in a July 28, 2022  cease-and-desist order, including:

  • a 12-month suspension from association with any “broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization”;
  • a 12-month suspension from direct or indirect participation in the sale of penny stock;
  • a 12-month suspension from “serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter”; and
  • Fines including
    • $26,807 in disgorgement;
    • $3,166 in prejudgment interest; and
    • $25,000 in civil penalties.
The SEC Case against Alan Appelbaum

In May 2021, Alan Appelbaum , the former managing director of Aegis, resigned for his failure to follow Aegis’s procedures and for engaging in unauthorized trading. According to the SEC complaint, Appelbaum made over 140 unsuitable recommendations and purchases of risky, highly complex structured securities for investors prior to his resignation from Aegis. Investors of the products were not told by Appelbaum that they could lose some or all of their investment. The investors were also not told that there was no guaranteed interest beyond an initial period.  The complaint also states that he engaged in unauthorized trading.

Other Disclosures on Alan Appelbaum’s FINRA BrokerCheck report

July 2006: New Hampshire issued a cease and desist and a $55,000 fine to Alan Appelbaum, who was not licensed to sell securities in New Hampshire, for servicing New Hampshire customers by using another broker’s number.

January 1991: the NASD, now known as FINRA, censured and fined Alan Appelbaum $10,000 for violation of various industry rules including:

  • the maintenance of books and records,
  • maintenance of required minimum capital,
  • failure to obtain physical possession or control of all fully paid and excess margin securities,
  • failure to maintain and enforce adequate written supervisory procedures,
  • as well as numerous other allegations.

February 1982: the SEC censured Alan Appelbaum for allegations of the creation of incorrect addresses at the request of his customers for the delivery of confirmations in violation of industry rules.

During his 46 years in the securities industry, Alan Appelbaum has been registered with 7 brokerage firms including J.B. Hanauer & Co., Paine, Webber, Jackson, & Curtis, Inc., A.F. Best Securities, Inc., Gruntal & Co., LLC, Ryan, Beck & Co. Inc, Herbert J. Sims & Co Inc., and Aegis Capital Corp.

To date, Alan Appelbaum has had 11 formal complaints filed with FINRA, many of which also relate to unsuitable investment recommendations.

The complaint against Appelbaum remains ongoing.

Brokers and Brokerage Firms are Required to make Suitable Recommendations

Brokerage firms and their brokers must only recommend suitable investments to their customers. Unsuitable investment advice is an investment recommendation that is not consistent with an investor’s investment objectives, risk tolerance, and investment time horizon. Each customer should have its own specific determination of suitability based on their specific circumstances.

FINRA established a “suitability” rule which requires brokerage firms and their financial advisors to have a “reasonable basis” for recommending investments or investment strategies, as suitable based on a customer’s investment profile. The rule requires “reasonable diligence” to gather all necessary information to formulate a basis for recommendations based on the following customer investment profile information:

  • age;
  • other investments;
  • employment status;
  • tax status;
  • investment objectives;
  • financial situation and needs;
  • investment experience;
  • investment time horizon;
  • liquidity needs;
  • risk tolerance, and
  • any other information disclosed by the customer in connection with the recommendation.
Aegis Capital Investigation

Former customers of Aegis Capital, Alan Appelbaum, and/or Paul Gallivan who have investment losses over $100,000, and those who have information relating to the manner in which Aegis Capital, Alan Appelbaum, and/or Paul Gallivan handled customer accounts, are encouraged to contact Lawrence L. Klayman, Esq., at 1-888-997-9956, and download our Special Investor Report.

About KlaymanToskes

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Lawrence L. Klayman, Esq.