New York-based broker-dealer Maxim Group agreed to pay an $800,000 fine in settling with the Securities and Exchange Commission (SEC) regarding the firm’s alleged failures to file required suspicious activity reports (SARs) and properly execute certain short sales.
The SEC announced its findings in an administrative proceeding Friday, the same day the Financial Industry Regulatory Authority (FINRA) posted a decision notice of its own against Maxim. FINRA fined the firm $500,000 and ordered it to retain an independent consultant regarding supervision failures and separate—but apparently related—suspicious activity reporting lapses.
The details: From January 2018 through January 2019, Maxim did not design or implement its anti-money laundering (AML) policies and procedures to reasonably address risks associated with its low-priced, over-the-counter microcap securities business, the SEC alleged in its order. The firm failed to identify and properly investigate red flags in accordance with its policies, resulting in it not filing SARs for “numerous transactions that it should have had reason to suspect involved possible fraudulent activity or had no business or apparent lawful purpose,” per the order.
The SEC also alleged Maxim violated Regulation SHO by entering certain short sales without borrowing the securities, arranging to borrow the securities, or having reasonable grounds to believe the securities could be borrowed in time for delivery on the date due.
The FINRA order found, from February 2019 to July 2022, Maxim failed to establish and maintain a supervisory system and written procedures reasonably designed to ensure certain securities sales complied with Section 5 of the Securities Act regarding registration statements and exemptions.
The self-regulatory organization also noted weaknesses in the firm’s AML program throughout the same period to detect or reasonably investigate red flags of suspicious activity involving low-priced securities transactions.
Compliance considerations: FINRA noted Maxim became aware of deficiencies in its AML program in November 2019 through an examination by a different regulator. The SEC was not named.
In response to those findings, Maxim increased its staffing responsible for AML compliance, revised its policies and procedures, added automated monitoring systems, and implemented measures to minimize trading in microcap securities, according to FINRA.
The SEC acknowledged similar remedial actions at Maxim and added the firm is in the process of engaging an outside consultant to review its Regulation SHO policies and procedures. Whether the consultant is the same as the one required by FINRA was unspecified.
A representative for Maxim did not respond to a request for comment. The firm neither admitted nor denied the findings of the SEC and FINRA.