A registered broker-dealer based in California has agreed to settle charges brought by the Securities and Exchange Commission (SEC) by paying a $500,000 civil penalty. The charges revolve around violations of federal securities laws concerning the submission of suspicious activity reports (SARs).
The SEC’s findings indicate that between July 2019 and December 2022, the broker-dealer failed to adequately design and implement its anti-money laundering (AML) policies. These deficiencies led to a failure to file SARs for various suspicious transactions due to the company’s inability to effectively investigate notable warning signs.
Specifically, the SEC’s order detailed that the firm’s anti-money laundering policies lacked provisions for recognizing critical red flags identified by public regulatory guidance. These include transaction patterns by omnibus accounts held at foreign financial institutions, substantial deposits that made up a large percentage of the security’s overall float, customer trading activity constituting a significant portion of daily trading volume, and notable trading by clients when there was a sudden increase in a stock’s price and volume without relevant news.
Moreover, the findings revealed that the firm did not adequately identify or probe other warning signs that its policies did recognize, such as matched trading activity. As a result of its actions, the broker-dealer was found to have willfully violated Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8, which governs required practices in the industry.
In response to the SEC’s conclusions, the broker-dealer has agreed to a cease-and-desist order and a censure but has not admitted or denied the SEC’s findings. This settlement highlights the importance of maintaining robust compliance programs to effectively identify and report suspicious activities in order to uphold the integrity of the securities industry.