SEC Fines Broker-Dealer $80,000 for Repeatedly Putting Customer Assets at Risk
The Securities and Exchange Commission has levied charges against Electronic Transaction Clearing, a registered broker-dealer headquartered in Los Angeles for putting its customers’ securities at risk in order to fund its own operations.
The Securities and Exchange Commission has levied charges against Electronic Transaction Clearing, a registered broker-dealer headquartered in Los Angeles for putting its customers’ securities at risk in order to fund its own operations.
Among other things, the SEC found that the firm violated the customer protection rule, which is intended to safeguard customers’ cash and securities assets in the event of a broker-dealer’s insolvency. The rule requires broker-dealers to maintain physical possession or control of customers’ fully paid and excess margin securities.
According to the SEC’s order, Electronic Transaction Clearing allegedly transferred almost $8 million of fully paid securities belonging to cash customers to an account at another clearing firm to meet margin requirements on borrowed funds, and the firm used more than $17 million of securities of two customers to borrow funds without consent.
The SEC also found that Electronic Transaction Clearing improperly commingled customers’ securities and allowed a customer’s excess margin securities to be loaned out by the other clearing firm.
“The SEC has brought several recent cases charging violations of the customer protection rule, which establishes critical protections to ensure that investors’ securities are kept safe by broker-dealers,” said Michele Layne, director of the SEC’s Los Angeles regional office. “As this case shows, no broker-dealer is allowed to use its customers’ securities to fund its own operations.”
The SEC’s order charged Electronic Transaction Clearing with violating the Securities Exchange Act and customer protection rule, as well as other related rules.
Without admitting or denying the findings, the broker-dealer agreed to pay an $80,000 penalty, to cease and desist from committing similar violations in the future, and to be censured. The SEC noted that Electronic Transaction Clearing cooperated with its investigation and took remedial steps to prevent future violations.
