Aegis Capital Corp. Allegedly Profited from Billions in Investor Losses

Aegis Capital Corp. allegedly profited from helping risky stocks debut on the stock exchange. Allegedly, these risky stocks eventually cost their customers billions of dollars. These allegations are not surprising – according to a 2024 Brokerage Firm Risk Ranking Report, Aegis Capital Corp. receives an especially high number of customer complaints. SLGC Economic Consulting reports that over the past three years, Aegis Capital Corp. has underwritten $1 billion in securities that are currently worthless.

In February 2024 alone, investors allegedly lost $1.4 billion of the $1.8 billion they invested in thinly traded stocks that Aegis Capital Corp. backed. According to SLGC, Aegis Capital Corp. helped keep failing companies afloat with their “willingness to sell these failing [companies’] worthless stock to its customers and the customers of other brokerage firms.”

The Full Picture

SLGC concludes that Aegis Capital Corp. failed its customers at three different levels: as a sole underwriter, a broker-dealer, and a market maker. 

• As a sole underwriter, Aegis Capital Corp. allegedly brought stocks to markets from small businesses that had no history of success and no reason to believe their stocks would provide a return for investors.
• As a market-maker, Aegis Capital Corp. allegedly made money off the bid-ask spread for these poorly performing stocks.
• As a broker-dealer, Aegis Capital Corp. representatives had a duty not to recommend overly risky investments to their customers. Aegis Capital Corp. analysts allegedly published baseless “buy” recommendations for low-priced stocks and brokers allegedly engaged in market manipulation in order to drive up the price of stocks.

Returns for High-Risk Aegis Capital Corp. Stocks

SLGC found that of the 186 stocks for which Aegis Capital Corp. served as an underwriter, 93.5% had negative returns. SLGC alleges that losses cannot solely be attributed to the fact that they were issued by small companies, also known as micro-cap issuers. The returns on Aegis Capital Corp.’s underwritings were allegedly 80% worse than the Dow Jones U.S. Micro-Cap Total Stock Market Index.

How Does Underwriting Work?

Underwriting, the process by which brokerage firms bring new stocks to the stock market, makes up a significant portion of Aegis Capital Corp’s business. In addition to its brokerage firm, Aegis Capital Corp. also does business as an investment bank. Investment banks that serve as underwriters receive a payment from the issuing company.

As part of the necessary underwriting due diligence, investment banks should carefully examine every aspect of the registration statement. This would include information about the risk factors. SLGC reports that Aegis Capital Corp served as the sole underwriter for 186 offerings. These offerings all came from small companies on the verge of financial collapse. According to SLGC, these offerings were only able to stay afloat because of Aegis Capital Corp’s willingness to sell their stocks to their clients.

Aegis Capital Corp. and Market Maker Conflicts of Interest

Aegis Capital Corp. had an incentive to recommend shares of these risky stocks to their customers.

In many cases, Aegis Capital Corp. served as the market-maker. The market maker agrees to provide both buy and sell prices for a security it has in its inventory. Market makers like Aegis Capital Corp. can make money off the bid-ask spread, which is the difference between how much someone will pay for a security versus the price offered by the seller. Because of its market maker status, Aegis Capital Corp. brokers had an incentive to recommend them to customers – in spite of the fact that the securities were too risky for many investors.

Alleged Manipulation by Aegis Capital Corp. Analysts

To inflate the price of the stocks, SLGC alleges that Aegis Capital Corp. analysts wrote favorable reports for certain stocks. Analysts allegedly gave aggressive “buy” recommendations for stocks despite the fact that the FINRA Rule 2241 requires firms to identify conflicts of interest and disclose those conflicts to customers.

Alleged Marking the Close and Stock Price Inflation

SLGC further alleges that Aegis Capital Corp. manipulated stock prices by marking the close. Marking the close means concentrating the transactions for a particular security toward the end of the day, in an effort to drive up the price for the following day.

SLGC alleges that Aegis Capital Corp. engaged in market manipulation to inflate the value of Meten stock. The SEC generally does not allow companies to issue more stock if the value of the existing stock is not more than $75 million. The value of Meten’s stock was too low to justify issuing more stock – for the value to reach $75 million, Meten stock would have to trade for $0.89 or higher. If it did not reach that level by September 1, the plans to issue another $40 million in stocks would have to be canceled.

Without any news regarding the stock, the trading value on September 1 suddenly jumped up, with 28 times the average daily trading volume than the daily average for the past two months. The stock price climbed to $.091, only to plummet dramatically back down to $0.45 the following day.

Aegis Capital Corp. Retail Customers

SLGC also alleges that Aegis Capital Corp. brokers engaged in misconduct when they recommended these overly risky investments to their customers. As SLGC alleges: “No unconflicted broker-dealer would have allowed its brokers to recommend the worthless stock Aegis was systematically underwriting.”

Investors should keep in mind that Aegis Capital Corp. brokers allegedly charged fees – called “markups” or “markdowns” to their clients.

How Can I Recover My Losses from Aegis Capital Corp. Stocks?

Contact a securities attorney today to discuss your options for recovery. Our attorneys offer free case evaluations and doggedly fight brokerage firms that defraud their clients. Call (877) 600-0098 or email info@kurtalawfirm.com.