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August 16, 2024 at 02:59 PM
Broker-dealer American Portfolios Financial Services has agreed to pay $225,000 and accept a censure to settle findings that it failed to develop an adequate anti-money laundering compliance program, according to the Financial Industry Regulatory Authority. The organization cited suspicious client trades in low-priced securities that allegedly went undetected.
The firm accepted the findings without admitting or denying them.
From January 2019 to August 2022, American Portfolios violated FINRA rules by failing to implement an anti-money laundering program reasonably designed to detect and cause the reporting of suspicious activity in such securities, according to a FINRA letter of acceptance, waiver and consent posted Thursday.
In the same period, the firm also violated FINRA rules by failing to establish, maintain and enforce a supervisory system to comply with a Securities Act of 1933 section requiring issuers to register offered securities with the Securities and Exchange Commission, unless an exemption applies, the AWC letter states.
American Portfolios opened new accounts for multiple clients that traded low-priced securities, according to FINRA, which reported that 10 client accounts deposited over 48 million shares of low-priced securities, liquidated over 42 million shares and generated nearly $17 million in proceeds during this period.
“Notwithstanding the heightened level of risk presented by this activity, the firm failed to establish and implement policies and procedures that could be reasonably expected to detect and cause the reporting of suspicious transactions involving low-priced securities,” the letter says.
The firm’s anti-money laundering procedures identified red flags but failed to provide guidance on how to detect suspicious activity, among other shortcomings, the authority said.
To detect potentially suspicious activity concerning low-priced securities, American Portfolios relied exclusively on an exception report prepared by its clearing firm that showed basic information but not historical or aggregated information that could identify patterns of suspicious activity, FINRA said.
The authority also found that the firm didn’t conduct ongoing due diligence of customers trading in low-priced securities or take reasonable steps to monitor and investigate hundreds of transactions in low-priced securities that raised red flags in at least 10 accounts held by four customers.
