SEC, Finra nab two firms for AML violations

The SEC has censured Chardan Capital Markets and Industrial and Commercial Bank of China Financial Services (ICBCFS) and settled charges against them for failing to report suspicious sales of billions of penny stock shares. Without admitting or denying the Securities and Exchange Commission's findings, Chardan agreed to pay a $1 million penalty and ICBCFS to $860,000. In addition, Jerard Basmagy, Chardan's anti-money laundering (AML) officer, who was found to have aided and abetted and caused the firm's violations, was required to pay $15,000. Mr. Basmagy also agreed to industry and penny stock bars for a minimum of three years. In a separate but related action, the Financial Industry Regulatory Authority Inc. fined ICBCFS $5.3 million for "systemic anti-money laundering compliance failures," the regulator said in a release. Finra said that the broker-dealer failed to have a reasonable AML program in place to monitor and detect suspicious transactions, as well as other violations, including financial, record keeping and operational violations. Within a few months of launching its new business line in late 2012, ICBCFS began clearing and settling equity transactions for thousands of new customers, many of whom began purchasing and selling millions of dollars' worth of penny stocks, Finra said. From January 2013 through September 2015, ICBCFS cleared and settled the liquidation of more than 33 billion shares of penny stocks, which generated approximately $210 million for ICBCFS's customers. Despite the volume of transactions, Finra said the firm failed to have in place "a reasonably designed AML program to detect and cause the reporting of potentially suspicious transactions, particularly those involving penny stocks." Finra found that prior to June 2014, ICBCFS had no surveillance reports that monitored potentially suspicious penny stock liquidations, and did not require its employees to document their review of the surveillance reports it did have in place. The Securities and Exchange Commission notified the firm in June 2014 that its customers were engaged in penny stock trading that raised red flags of potentially suspicious activity which the firm did not detect or report. Despite this notice, ICBCFS failed to make necessary changes to its AML program to adequately monitor this type of activity, Finra said.