The Financial Crimes Enforcement Network and the Securities and Exchange Commission today slapped securities broker Oppenheimer with a $20 million total civil penalty for not adhering to rules on the sale of penny stocks. Of that amount, $10 million will go to the SEC to resolve related securities and Bank Secrecy Act violations.
Oppenheimer admitted that it failed to establish and implement an adequate anti-money laundering program, failed to conduct adequate due diligence on a foreign correspondent account, and failed to comply with requirements under Section 311 of the USA PATRIOT Act.
The settlement marks the second time FinCEN has penalized Oppenheimer for similar violations, following a $2.8 million civil penalty in 2005. Additionally, the Financial Industry Regulatory Authority in 2013 fined the firm $1.4 million for violations of securities laws and anti-money laundering failures. “It is clear that their compliance culture must change,” said FinCEN Director Jennifer Shasky Calvery.
Under Section 311, the Director of FinCEN may determine that a foreign financial institution presents a primary money laundering concern and may require U.S. financial institutions to take certain special measures against that entity, including prohibiting U.S. financial institutions from opening or maintaining correspondent accounts for the named foreign financial institutions.
To be effective, U.S. financial institutions must conduct adequate due diligence and notify their foreign correspondent financial institutions of special measures imposed under Section 311, so that institutions of primary money laundering concern do not have improper and unfettered access to the U.S. financial system.
According to FinCEN, by failing to notify its correspondents, Oppenheimer potentially placed the U.S. financial system at risk. From 2008 to 2014, Oppenheimer conducted business without establishing and implementing adequate policies, procedures, and internal controls reasonably designed to detect and report suspicious activity.
FinCEN identified 16 customers who engaged in patterns of suspicious trading through branch offices in five states. All the suspicious activity involved penny stocks, which typically are low-priced, thinly traded, and highly speculative securities that can be vulnerable to manipulation by stock promoters and “pump-and-dump” schemes.
Oppenheimer failed to report patterns of activity in which customers deposited large blocks of unregistered or illiquid penny stocks, moved large volumes of penny stocks among accounts with no apparent purpose, or immediately liquidated those securities and wired the proceeds out of the account.
In addition, Oppenheimer itself designated a customer foreign financial institution as “high risk” but failed to assess the institution’s specific risks as a foreign financial institution or conduct adequate due diligence. Oppenheimer inadequately monitored the foreign financial institution’s transactions and consequently did not detect or investigate numerous suspicious transactions conducted through the account, including prohibited third-party activity and illegal penny stock trading.