The Financial Industry Regulatory Authority has fined Aegis Capital Corp. $550K for inadequate supervision and anti-money laundering systems related to its low-priced securities sales. According to the self-regulatory organization, the firm’s supervisory system that oversees trading involving delivery versus payment (DVP accounts) was not designed in a manner reasonable enough to properly “monitor and investigate” trading in the accounts, especially those involving securities transactions that were priced low.
With DVP accounts, a broker-dealer making the trades does not have to be holding the securities that are bought and sold. FINRA said that Aegis did not “adequately monitor or investigate” seven DVP customer accounts, a number of which belonged to foreign financial firms, in which trading involved the liquidation of billions of dollars of such securities. These transactions resulted in millions of dollars in proceeds. A number of these institutional clients made the transactions for underlying customers whose identities Aegis did not know.
The SRO found that Aegis failed to mark these transactions as suspect even after a clearing firm highlighted that there were anti-money laundering-related red flags. Aegis is settling FINRA’s case but without denying or admitting to the regulator’s findings.
In the US Securities and Exchange Commission’s case, the regulator found that Aegis was in willful violation of the regulator’s financial recordkeeping and reporting rule. The firm has admitted that it failed to submit SARs reports regarding a number of the suspect transactions.
SARs stands for Suspicious Activity Reports, which are what brokerage firms must submit when transactions appear to involve potentially fraudulent activity or seem to have no legal or business reason take place. The SEC, in its order, found that Aegis neglected to submit SARs for transactions that seemed to indicate that low-priced securities were being manipulated.
To settle, Aegis will pay a $750K penalty and hire a compliance expert.
In a separate SEC order, ex-Aegis anti-money laundering compliance officer Kevin McKenna and CEO Robert Eide settled the regulator’s findings that McKenna aided and abetted the brokerage firm’s violations while Eide allegedly caused them. McKenna will pay a $20K penalty and Eide a $40K to resolve the Commission’s case, but they are not denying or admitting to the regulator’s findings.
Ex-Aegis AML compliance officer Eugene Tarcciano is still the subject of an SEC Enforcement Division order. He is accused of aiding, abetting, and causing the broker-dealer’s violations. His case will go before an SEC administrative law judge.
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