Multiple compliance problems at the clearing firm, which serves about 86 correspondent broker-dealers, has led to an agreement to pay a $1M fine as part of a settlement with Finra.
COR Clearing, formerly Legent Clearing, has been censured and fined $1 million by Finra for a variety of compliance failures involving lapses in anti-money-laundering procedures, financial reporting and supervisory obligations.
COR provides clearing services such as order processing, settlement and record-keeping functions for about 86 correspondent broker-dealers. Many are small firms with independent-contractor representatives and financial advisers.
Some of the charges against COR date back to 2009.
The company neither admitted nor denied the charges, according to the settlement.
The firm changed ownership in December 2011 and changed its name in September 2012.
From January 2009 to early 2013, COR failed at times to meet its anti-money-laundering, financial reporting and supervisory responsibilities, according to the settlement order.
“The firm had numerous violations in these areas,” the Financial Industry Regulatory Authority Inc. settlement said.
For several months last year, COR's anti-money-laundering surveillance system suffered a near-complete collapse.
That resulted in the firm's failure to conduct any systematic reviews to identify and investigate suspicious activity, according to Finra.
In early 2009 and again early last year, the firm also “failed to establish and implement policies and procedures reasonably designed to monitor for, detect and cause the reporting of transactions required under the Bank Secrecy Act,” according to the Finra settlement.
The firm also failed to prepare accurate customer reserve and net capital computations over the same time periods, according to Finra.
“COR's history of multiple violations in these key compliance areas resulted from its weak culture of compliance,” Brad Bennett, Finra's chief of enforcement, said in a statement. “This is particularly troubling given the amount of deposits and sales of low-priced securities through COR's introducing [broker-dealers] — a major area of concern for Finra.”
The settlement resolves a Finra complaint brought against COR/Legent in April 2012.
The firm's written supervisory procedures for microcap securities required COR to conduct due diligence on such securities before allowing its correspondent broker-dealers to sell them, according to the settlement.
COR failed to follow those procedures several times in 2012 and this year, according to the settlement.
The settlement, however, identified two times when COR didn't conduct adequate due diligence on microcap securities, once in January 2012 and the other in December 2012.
COR also failed to retain and monitor the outside e-mail accounts used by an unnamed executive vice president from January to May 2012.
“Settling these longstanding open issues with Finra allows us to move forward with our plans for further growth and improvement,” COR's president, Carlos Salas, said in a statement. “While agreeing to economic sanctions is never a happy decision, I am pleased that we settled for an amount that is less than we would have paid counsel to litigate and much less that the indemnification limits the prior owners of the firm provided for the resolution of these types of issues.”
COR has invested in new compliance and personnel systems since it acquired Legent last year, Mr. Salas said.
There is no continuing dispute as to COR's controls, and none of Finra's findings involved losses to clients, he added.
