FINRA Fines NY-Based Broker-Dealer $225,000 for Anti-Money Laundering Lapses
The Financial Industry Regulatory Authority announced that it has censured and fined the full-service independent broker-dealer, American Portfolios Financial Services Inc., $225,000 for failing to implement adequate anti-money laundering, or AML, measures.
According to FINRA, between January 2019 and August 2022, American Portfolios opened new accounts for multiple customers that transacted in low-priced securities. Ten customer 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.
Specifically, the firm failed to develop and implement a robust AML program, particularly concerning low-priced securities. Despite having procedures that identified red flags such as atypical trading patterns and suspiciously timed transactions, the firm did not provide clear guidance on detecting or responding to these red flags. The firm’s reliance on a basic exception report from its clearing firm proved insufficient for identifying patterns of suspicious activity.
FINRA also highlighted instances where customers deposited large volumes of low-priced securities, liquidated them rapidly and withdrew the proceeds, often during promotional campaigns or price spikes. According to FINRA, American Portfolios failed to adequately investigate these transactions, even in cases where customers had disciplinary histories.
One example included an American Portfolios customer who deposited 330,000 shares of a low-priced security, liquidated the entire position the same day, and wired out the proceeds five days later. The deposit and liquidation occurred in the midst of a promotional campaign for the security, resulting in price spikes and surging volume. According to FINRA, the firm did not detect or investigate this activity.
Additionally, American Portfolios was found to have violated FINRA Rule 3110, which “requires a member firm to establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.” Instead, the firm relied heavily on questionnaires completed by registered representatives but lacked a standardized process for reviewing these questionnaires or ensuring their completion.
American Portfolios did not admit or deny the findings.
Headquartered in Holbrook, N.Y., American Portfolios Financial Services offers personal financial and retirement planning, securities trading, mutual funds, access to investment research, long-term care planning, insurance products, and tax-free investing. The firm has approximately 800 registered representatives operating from more than 360 branches.
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