Last month, the SEC instituted cease and desist proceedings against an AML Officer and CEO of a New York-based investment adviser and broker-dealer due to violations of the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, and the Investment Company Act of 1940. From late 2012 to early 2014, the broker-dealer/investment adviser, Aegis Capital Corporation (“Aegis” or “the firm”), failed to file Suspicious Activity Reports (“SARs”) on hundreds of transactions. The transactions at issue involved the use of the broker-dealer to facilitate fraudulent activity or had no business or apparent lawful purpose, and the firm was aware of these issues. A large number of the transactions involved red flags of potential market manipulation, including high trading volume in companies with little or no business activity during a time of simultaneous promotional activity. The firm’s written supervisory procedures addressed the relevant types of transactions and many others.
The firm’s AML Compliance Officer (Kevin McKenna) and CEO (Robert Eide) were both fined due to the firm’s AML compliance lapses which resulted in violations of the securities laws previously mentioned. McKenna and the firm’s former AML Officer became aware of transactions that exhibited numerous AML red flags through alerts from Aegis’ clearing firms. McKenna and the former AML Officer were aware of the transactions because they were the primary points of contact for the clearing firms as it related to suspicious activity. Despite the alerts, McKenna and the former AML officer did not file SARs on Ageis’ behalf regarding these transactions and they did not create written analyses or compile other records indicating that they considered filing SARs.
During the relevant time period, Eide was alerted to at least some of the suspicious transactions as well, but he failed to take adequate steps to ensure that Aegis was filing the requisite SARs. The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) identified serious deficiencies in Aegis’ SAR-filing practices related to its low-priced securities business in a January 2014 letter directly addressed to Eide.
Given the firm’s violations of the relevant securities laws, AML Officer McKenna was assessed a $20,000 fine and CEO Eide was assessed a fine of $40,000. Click here to read the full SEC order.
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