On September 1, 2010, the SEC charged Pinnacle Capital Markets LLC, a brokerdealer, with failing to comply with customer identification program (“CIP”) requirements. Pinnacle's managing director, Michael A. Paciorek, was also charged with causing Pinnacle's violations. According to the order, Pinnacle established, documented and maintained a CIP that specified it would identify and verify the identities of all of its customers; however, during a six-year period, Pinnacle failed to follow the identification and verification procedures set forth in its CIP.
According to the order, many of Pinnacle’s foreign institutional customers hold omnibus accounts at Pinnacle through which the entities carry sub-accounts for their own corporate or retail customers and the sub-account holders are treated in the same manner as regular account holders. Also, according to the order, Pinnacle did not verify the identities of 34 out of a sample of 55 corporate account holders from October 2003 to August 2006, and from October 2003 through November 2009, Pinnacle did not collect or verify identifying information for the vast majority of the beneficial owners of sub-accounts maintained by Pinnacle's omnibus brokerage accounts. As a result, the SEC found that Pinnacle's documented procedures differed materially from its actual procedures. Pinnacle and Mr. Paciorek agreed to settle the SEC's enforcement action without admitting or denying the allegations, and Pinnacle will pay $25,000 in penalties.