“Broker-dealer registration protects investors and our markets. It is not optional. As securities industry professionals, Galvani and Jeffery knew the rules, but we allege they didn’t follow them.”
The Securities and Exchange Commission has charged the executives behind the New York-based GEL brokerage group for facilitating more than $1.2 billion of securities trading, primarily in penny stocks, without being registered with the SEC.
Jeffrey K. Galvani and Stuart A. Jeffery were both registered brokers at a registered broker-dealer unconnected with this case, but they allegedly created GEL Direct Trust, which they managed through its trustee, GEL Direct, LLC. These were not registered with the SEC.
From 2019 to 2022, the two executives provided brokerage services to approximately 60 customers involving at least 19,000 securities trades, primarily in penny stocks, through the GEL entities.
Their services included taking possession of customer securities, directing trades to executing brokers, facilitating trade settlements, and disbursing trading proceeds to customers. In return, they earned at least $12 million in transaction-based and other compensation.
David L. Peavler, Director of the SEC’s Fort Worth Regional Office, said: “Broker-dealer registration protects investors and our markets. It is not optional. As securities industry professionals, Galvani and Jeffery knew the rules, but we allege they didn’t follow them.”
The SEC seeks permanent injunctions, disgorgement, prejudgment interest, civil penalties, and penny stock bars against all defendants.
SEC charged Justin Costello for penny stocks scheme under false persona
A few weeks ago, the SEC charged cannabis executive Justin Costello for using a false persona, as a Harvard-educated military veteran and hedge fund billionaire, to defraud investors out of millions of dollars.
Allegedly portraying himself to the public as a seasoned, licensed investment professional who was building a conglomerate in the cannabis industry, Justin Costello included fake credentials as a Harvard MBA, experience managing a $1.15 billion hedge fund, and years of experience on Wall Street.
He used his fake persona to secure approximately $900,000 of investments in two different companies from more than 30 investors.
As an investment advisor to a married couple, he sold them $1.8 million of shares in a penny stock at a markup of 9,000 percent over the price paid by Costello and used their $4 million brokerage account to trade, at a significant loss, securities of microcap companies in which Costello had an undisclosed financial interest.
Costello and Ferraro engaged in various stock promotion schemes using penny stocks and social media. The complaint alleges that Ferraro posted hundreds of tweets to hype those stocks and did not disclose that Costello intended to sell his shares once the stock price increased or that Ferraro would receive a share of Costello’s profits. Through these alleged schemes, Costello and Ferraro together made approximately $792,000 in illicit trading profits.