Firm Settles Charges for SAR Reporting Failures

A firm settled SEC charges for failing to file any Suspicious Activity Reports ("SARs") on transactions conducted through its alternative trading system platforms.

According to the Order, the firm failed to adequately monitor, investigate and file SARs on firm platforms that handle transactions involving OTC securities. The SEC found that the firm failed to surveil for, recognize and investigate red flags of: (i) "sell orders from subscribers representing a large volume of trading relative to the average daily trading volume in thinly-traded microcap issuers;" (ii) "consistent one-sided trading by a subscriber in a particular thinly-traded microcap issuer accompanied by a significant increase in stock price;" (iii) "trading activity by subscribers involving apparent pre-arranged securities trading, including wash or cross trades, in thinly-traded microcap securities;" or (iv) "transactions involving subscribers who were publicly known to be the subject of criminal, civil or regulatory actions for crime, corruption, or misuse of public funds."

In addition, the SEC found that the firm's AML policies were deficient as they focused only on specific red flags related to microcap fraud. The SEC noted that the firm's AML department consisted of only a Chief Compliance Officer (who was also the Anti-Money Laundering Compliance Officer), who allocated approximately two hours per month to the oversight of the AML program, and a junior-level Compliance Associate.

As a result, the SEC found that the firm violated SEA Section 17(a) ("Records and Reports") and SEA Rule 17a-8 ("Financial Recordkeeping and Reporting of Currency and Foreign Transactions").

To settle the charges, the firm agreed to (i) a $1,190,000 civil money penalty, (ii) a censure, and (iii) cease and desist from the violations. In determining the settlement, the SEC considered the remedial action taken by the firm and its cooperation during the proceedings.