On August 12, the SEC issued published a settled enforcement action order against a broker-dealer for failing to monitor, investigate, and file Suspicious Activity Reports (SARs) between March 2020 and May 2023, violating Sections 15(b) and 21C of the Securities Exchange Act. The SEC ordered the broker-dealer to cease and desist from future violations of Section 17(a) of the Exchange Act and Rule 17a-8. The firm was also censured and required to pay a civil money penalty of $1.19 million.

The broker-dealer admitted other registered broker-dealers as subscribers to its trading system platform, which traded over-the-counter securities like microcap or penny stocks. Despite being required to comply with the BSA and its regulations, the broker-dealer failed to adopt or implement adequate AML policies and procedures. The SEC alleged that the broker-dealer did not surveil, investigate, or file SARs on numerous transactions indicating possible fraudulent activity or lacking a lawful business purpose. The SEC highlighted several red flags the broker-dealer failed to address, such as large volume trading, one-sided trading with price increases, and trading activities involving pre-arranged or wash trades. Additionally, the broker-dealer did not investigate transactions involving subscribers known to be subjects of criminal, civil or regulatory actions.

The broker-dealer’s surveillance system alerted potentially suspicious trading activity, but the firm did not review these alerts. Between January 2020 and June 2021, the system generated 1,862 alerts (about 310 alerts per month). However, the compliance team devoted only about five hours per month to review these alerts, which the SEC found insufficient. Consequently, the broker-dealer failed to file any SARs during the relevant period despite suspicious trading activity. The broker-dealer neither admitted nor denied these findings.