On May 16, 2018, the Securities Exchange Commission (“SEC”) announced it had settled charges against a registered broker-dealer, its clearing firm, and its chief compliance and anti-money laundering (“AML”) officer brought over the firm’s failure to file Suspicious Activity Reports (“SARs”) related to customers’ liquidation of billions of penny stocks over an eight month period. In a companion action, the Financial Industry Regulatory Authority (“FINRA”) imposed a monetary penalty against the clearing firm for various AML compliance failures.
Chardan Capital Markets, LLC (“Chardan”) was a registered broker-dealer primarily engaged in underwriting private investment in public equity (“PIPEs”), private placements and initial public offerings (“IPOs”). In 2013, Chardan allegedly began actively engaging in the liquidation of thinly-traded penny stocks of microcap issuers. Industrial and Commercial Bank of China Financial Services, LLC (“ICBCFS”) is a registered broker-dealer that, in late 2012, began clearing equity securities and, from October 2013 through June 2014, cleared Chardan’s customers’ penny-stock transactions.
We previously have blogged about the SEC and FINRA stepping up their AML-related enforcement, as well as the issue of AML-related individual liability for compliance officers and executives (see here, here, here, here and here). Aside from reaffirming the dubious nature of penny stock trading, this case once again reflects the need to actually act on identified red flags and file related SARs. Continue Reading SEC Sanctions Broker-Dealer, Clearing Firm and Chief Compliance Officer for AML Violations