Firm Settles FINRA Charges for AML Failures Involving Low-Priced Securities

A firm settled FINRA charges for failing to develop and implement an anti-money laundering ("AML") program reasonably designed to detect and report suspicious transactions involving low-priced securities.

According to the AWC, the firm failed to detect and reasonably investigate red flags of suspicious activity involving the deposit and liquidation of low-priced securities. FINRA said the firm failed to reasonably investigate warning signs during the relevant period, such as customers depositing large blocks of shares, liquidating positions that represented up to 66.8% of the security's daily trading volume, and subsequently wiring the proceeds out of their accounts.

FINRA found that the firm failed to reasonably tailor its AML compliance program to address the specific risks posed by low-priced securities. FINRA stated that the firm’s AML procedures lacked reasonable guidance on how to investigate red flags involving low-priced securities, omitted "certain customer accounts subject to ... tri-party clearing agreements" from low-priced trading exception reports, and lacked "appropriate risk-based procedures for conducting ongoing customer due diligence." FINRA also found that the firm’s exception reports failed to include sufficient information to identify patterns of suspicious activity over time, and that the firm did not conduct ongoing or additional due diligence on accounts that regularly transacted in low-priced securities.

FINRA concluded that the firm violated FINRA Rules 3310 ("Anti-Money Laundering Compliance Program") and 2010 ("Standards of Commercial Honor and Principles of Trade").

The firm agreed to (i) a censure and (ii) a $125,000 fine.