Broker-Dealer Settles SEC Charges for AML Program Failures

A broker-dealer settled SEC charges for failing to investigate red flags in its equity trading business which resulted in failing to file suspicious activity reports ("SARs").

According to the cease-and-desist Order, the firm acted as a market maker and executing broker in exchange-listed and over-the-counter ("OTC") securities. The SEC said the firm relied on "exception reports" to identify red flags such as "Marking the Close" or "Pump and Dump" schemes. The SEC found that these reports were often deficient or went completely unreviewed for long periods. The SEC highlighted that one report meant to identify market manipulation went unreviewed for 34 consecutive months. Asa result, the SEC found that the firm’s AML surveillance program was inadequate.

The SEC also found that the firm’s failure to investigate red flags resulted in the failure to file approximately 150 SARs related to suspicious transactions. Further, the SEC found that certain employees falsified documentation to make it appear that required reviews had been performed.

As a result, the SEC charged the firm with violating SEA Section 17(a) ("Records and Reports") and Rule 17a-8 ("Financial recordkeeping and reporting of currency and foreign transactions").

The firm agreed to a cease-and-desist Order, a censure, and agreed to pay a civil money penalty totaling $20 million. The SEC noted that it had taken into consideration the firm’s remedial efforts, which included hiring additional AML compliance staff, retaining third-party consultants, and conducting a lookback to file the missing SARs.