A lawsuit filed on Thursday in the Southern District of New York by the Securities and Exchange Commission (SEC) contends that Jeffrey K. Galvani and Stuart A. Jeffery and the companies they manage operated as unregistered broker-dealers, facilitating more than $1.2 billion of securities trading, primarily in penny stocks.
The filing asserts that defendants were friends who had worked in the securities industry for years. In 2019, they began a venture, GEL Direct Trust, which they managed through its trustee, GEL Direct LLC. However, the SEC contends that the entities were not registered as broker-dealers, despite knowing about the requirement.
Until at least May 2022, Galvani and Jeffery, acting through the GEL entities, provided brokerage services to about 60 customers with at least 19,000 securities trades, the SEC avers. The complaint points to examples where the defendants directed trading in securities and otherwise describes how they facilitated transactions without the requisite registrations.
As remuneration, the defendants allegedly received at least $12 million in transaction-based and other compensation.
The SEC’s complaint charges Galvani, Jeffery, and the GEL entities with violating the securities law’s broker-dealer registration requirement and charges Galvani and Jeffery as “control persons” of the GEL entities under a separate provision. The SEC requests permanent injunctions, disgorgement, interest, civil penalties, and penny stock bars against all defendants.
In a statement, David L. Peavler, Director of the SEC’s Fort Worth Regional Office commented on the action. “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.”
