Albert Fried & Company, LLC, a Securities and Exchange Commission-registered broker-dealer, agreed to pay a fine of US $300,000 to resolve charges by the SEC that, from August 2010 through October 2015, it failed to file reports of suspicious activities (SARs) by customers with the Financial Crimes Enforcement Network of the US Department of Treasury, as required by law. According to the SEC, during this time on multiple occasions, Albert Fried received large-volume deposits of penny stocks from a number of customers. Afterwards, the customers sold the stocks in transactions that often constituted a “substantial portion” of the daily volume in the thinly traded securities. These liquidations, alleged the SEC, were often accompanied by other suspicious indicators. These red flags included, among other things, that Albert Fried received regulatory inquiries and grand jury subpoenas regarding certain of its customers’ penny stock trading; other broker-dealers rejected the firm’s effort to transfer the certain penny stocks; and after liquidating one issuer’s penny stock, a customer transferred one hundred percent of its cash proceeds from its Albert Fried account. At the relevant time, Albert Fried maintained written procedures that required the firm to take certain steps to know its customers, approve deposits of penny stocks, and monitor large volume trading. The procedures also required the firm to file SARs with FinCEN for “trading that constitutes a substantial portion of all trading for the day in a particular security;” “heavy trading in low-priced securities;” and “unusually large deposits of funds or securities.” The firm did not adequately follow its procedures, alleged the SEC.
Compliance Weeds: Applicable law and FinCEN rules require broker-dealers and other covered financial institutions (banks, Commodity Futures Trading Commission-registered future commission merchants and introducing brokers and SEC-registered mutual funds) to file a SAR with FinCEN in response to transactions or patterns of transactions involving at least US $5,000 which a covered entity “knows, suspects, or has reason to suspect” involve funds derived from illegal activity; have no business or apparent lawful purpose; are designed to evade applicable law; or utilize the institution for criminal activity. Previously, the Financial Industry Regulatory Authority also fined Brown Brothers Harriman & Co. US $8 million for failing to file SARs in connection with similar activity involving penny stocks. In that matter, FINRA also fined and suspended the firm’s global anti-money laundering compliance officer for his alleged role in the firm’s alleged misconduct. (Click here for details in the article, “FINRA Says Brown Brothers Harriman Had an Unsatisfactory Anti-Money Laundering Program; Sanctions Firm and Former Global AML Compliance Officer,” in the February 10, 2014 edition of Bridging the Week.) Covered entities should continually monitor transactions they effectuate and ensure they maintain written procedures they follow to identify and evaluate red flags of suspicious activities and file required SARs with FinCEN when appropriate. (Click here for a discussion of another more recent FINRA disciplinary action against a member for alleged widespread AML breakdowns in the article, “Two Related Broker-Dealers To Pay US $17 Million for Widespread AML Compliance Failures; Former AML Compliance Officer Also Sanctioned” in the May 22, 2016 edition of Bridging the Week.)