Velox Clearing LLC, a broker-dealer based in California, is set to pay a fine of $500,000 to resolve charges brought by the Securities and Exchange Commission (SEC) due to violations of federal securities laws relating to suspicious activity report (SAR) submissions.
The SEC’s findings indicated that from July 2019 to December 2022, the firm failed to develop or properly implement adequate anti-money laundering policies and procedures. This oversight led to significant deficiencies in their systems, notably a lack of investigation into various indicators of suspicious activities that could compromise the integrity of the financial markets.
The regulatory order highlights specific failures on Velox’s part, which included their inability to recognize and act upon clear warning signs outlined in authoritative regulatory guidance. These signs are critical for detecting potentially illicit transactions. For instance, issues arose from customer transactions involving omnibus accounts at foreign financial institutions, significant deposits relative to the total float of a security, and trading patterns that deviated notably from historical norms without any relevant news or events affecting the security.
Additionally, there were instances of matched trading activity that the firm’s policies did recognize, but which were not sufficiently investigated. Such oversights contributed to the company’s overall negligence in addressing suspicious transactions adequately, resulting in a considerable number of unfiled SARs that were mandatory under federal law.
The outcome of the SEC’s investigation led to the conclusion that Velox Clearing willfully violated various sections of the Securities Exchange Act of 1934, primarily focusing on the improper compliance with rules that are designed to prevent money laundering and other fraudulent activities.
In concluding the case, Velox agreed to a cease-and-desist order and accepted a formal censure, which emphasizes the SEC’s continued vigilance and enforcement in holding firms accountable for lapses in their compliance efforts. The settlement, while significant in terms of financial penalty, also serves as a reminder to all broker-dealers of the necessity of adhering strictly to established anti-money laundering regulations and best practices to safeguard market integrity.