CFTC, SEC, And FINRA Settle AML-Related Charges With Broker-Dealer
Government/Regulatory Enforcement
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  • CFTC, SEC, And FINRA Settle AML-Related Charges With Broker-Dealer
    On August 10, 2020, the Commodity Futures Trading Commission (“CFTC”), Securities and Exchange Commission (“SEC”), and Financial Industry Regulatory Authority, Inc. (“FINRA”) settled charges with a broker-dealer and registered futures merchant for allegations that the broker-dealer failed to flag suspicious activity and fulfill anti-money laundering requirements.  Across three separate settlements, and without admitting any wrongdoing, the broker-dealer agreed to pay $15 million in fines to FINRA, over $12 million to the CFTC, and $11.5 million to the SEC, for a total penalty of nearly $38 million.

    The CFTC found that from June 2014 through November 2018, the broker-dealer failed to diligently supervise its employees’ handling of several commodity trading accounts that were the subject of recent enforcement actions and nonpublic investigations initiated by the CFTC.  According to the CFTC, the account holders used their accounts at the broker-dealer to defraud investors of millions of dollars and the broker-dealer allegedly failed to identify or act on red flags associated with this activity, including a high frequency of deposits and withdrawals and the movement of millions of dollars of investor monies into personal trading accounts.

    While the broker-dealer maintained certain written policies designed to prevent AML activity, the CFTC also alleged that it failed to devote enough resources to ensure that its employees were equipped to monitor, detect, and report suspicious activity in customer accounts.  According to the CFTC, the broker-dealer failed to employ enough compliance analysts to adequately review dozens of surveillance reports for suspicious activity across its customer base, even when a thorough review and an SAR filing was called for under written compliance policies.  As a result of these alleged failures, the CFTC asserted that the broker-dealer violated CFTC regulations designed to ensure compliance with the Bank Secrecy Act.

    The settlements with the SEC and FINRA noted similar alleged issues.  Both regulators alleged that the broker-dealer did not investigate red flags of potentially suspicious conduct, such as the transfer of money through high-risk jurisdictions, and that it did not file SARs on suspicious transactions.  The SEC and FINRA, which noted that the broker-dealer is one of the county’s largest electronic brokers, found the company’s AML compliance program inadequate, as the company did not, in their view, reasonably monitor many instances of suspicious activity, such as market manipulation schemes and other misconduct.

    This settlement marks the first CFTC enforcement action charging a violation of Regulation 42.2, which requires registrants to comply with the Bank Secrecy Act, and demonstrates the CFTC’s commitment to ensuring that these requirements are met.  The settlements also underscore the continued importance of strong monitoring mechanisms to identify fraud, manipulation, and other wrongdoing in customer accounts.