Firm Settles FINRA Charges for AML and Supervisory Failures
A firm settled FINRA charges for anti-money laundering ("AML") and supervisory deficiencies related to its failures to detect and report suspicious transactions, conduct independent AML testing and enforce adequate market manipulation controls.
According to the AWC, the firm lacked adequate procedures to identify red flags of potentially manipulative trading, including wash trades, cross trades, layering and spoofing. FINRA found that the firm failed to implement any order-level surveillance and did not monitor canceled trades.
FINRA also found that the firm failed to conduct due diligence on customers engaging in suspicious low-priced securities trading. FINRA said that customers who deposited shares of microcap stocks engaged in pre-arranged trading patterns, frequently trading in close proximity to one another. Despite alerts being triggered, FINRA said the firm closed them without meaningful investigation, allowing customers to manipulate stock prices and liquidate shares without scrutiny.
FINRA found that the firm's customer identification and risk assessment procedures were also inadequate. FINRA said the firm failed to verify customer identities properly, identify account activity inconsistent with customers' stated financial profiles and detect common addresses or IP addresses among related customers engaging in suspicious trading. FINRA said that, in multiple cases, customers deposited shares worth millions despite reporting significantly lower net worth.
Further, FINRA said the firm did not conduct reasonable independent testing of its AML program during the relevant period.
FINRA determined that the firm violated FINRA Rules 3310 ("Anti-Money Laundering Compliance Program") and 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the firm agreed to (i) a censure, (ii) pay a $475,000 fine and (iii) retain a third-party consultant to review and enhance its AML program, surveillance systems and supervisory controls.