The Broumas Accounts Chema handled seven separate accounts for Broumas at Beck, four of which were opened by Broumas' nominees. Broumas called in all of the orders for six of the accounts and most of the orders for the seventh. All of the transactions in two of the accounts and most of the transactions in the others were in JML stock. The fourth nominee, L. Lawton Rogers, was a Broumas business associate and attorney. Chema believed that the nominees opened their accounts to provide Broumas with additional credit to assist him in his effort to maintain his JML stock ownership.
Regulators examine activity in nominee accounts.
You cannot simply insulate yourself from trouble by turning a deaf ear and a blind eye to your clients' activity. This is the so-called knew or should have known legal standard. Often, clients are asked to indicate whether they have a beneficial interest in any other accounts, or if there is a family relationship. However, in the case of Chema, even without any last name similarity, he was on notice of some relationship among the accounts because Broumas was calling in the orders, and those orders largely involved the same stock. Further, Broumas was a Director of the issuer and Chairman of the Board of the employer of three of the nominees.