The Securities and Exchange Commission is once again punishing a chief compliance officer who was negligent is their duties.
John David Telfer, 56, was former chief compliance officer and anti-money laundering officer of a registered broker-dealer, Meyers Associates (now known as Windsor Street Capital). He served in those roles from November 2013 until his separation from the firm in September 2016.
In January 2017, the SEC initiated proceedings against Telfter and his firm, arising from his “failure to perform his responsibilities as the anti-money laundering officer of a registered broker-dealer, resulting in the broker-dealer failing to file suspicious activity reports required by statute and Commission rules.”
Meyers Associates was a New York limited partnership registered with the Commission as a broker-dealer since July 1993. It was headquartered in New York, New York and has active branch offices elsewhere in New York, and in Florida, Virginia, Pennsylvania, and Arizona.
The SEC’s allegation: From at least November 2013 to September 2016, Meyers Associates repeatedly violated the Exchange Act by failing to file SARs with the Treasury Department’s Financial Crimes Enforcement Network, as required by the Bank Secrecy Act and and its implementing regulations.
Meyers Associates failed to file required SARs for approximately $24.8 million in suspicious transactions. Telfer, as the firm’s AML officer “was personally responsible for ensuring the firm’s compliance with SAR reporting requirements,” the SEC charges.
The violations at issue all related to Meyers Associates’ penny stock liquidation business, in which “the firm routinely accepted physical deposits of large blocks of penny stock shares and liquidated them, followed by the customers transferring out sale proceeds,” the SEC says.
The firm’s written AML program identified this very pattern as a “red flag” that could trigger additional investigation as to whether a SAR filing would be necessary. Nonetheless, Telfer performed no investigation relating to any of the Suspicious Transactions.
The suspicious transactions were marked by numerous other red flags indicating that the customer may be involved in a pump-and-dump fraud scheme, including:
past securities fraud convictions or settlements by the customer or a related party;
inconsistencies between the customers’ representations and documentation submitted to the firm;
customers acquiring shares at very large discounts;
signs that documents submitted were not authentic;
recent changes in the issuers’ business model, including new business ventures relating to illegal industries, such as marijuana production and distribution;
trading into sudden spikes in price and volume;
and coordinated deposit and trading between one or more customers’ accounts.
“Even in cases where one or more of these red flags was brought directly to Telfer’s attention—for example, through notification from Meyer Associates’ clearing firm—Telfer knowingly or recklessly failed to file the required SARs,” the SEC says.
After negotiations with the Commission, Telfer agreed to a settlement that bars him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.
He is also prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter.
Tefler is similarly barred from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.
Tefler also agreed to pay $10,000 in civil penalties to the SEC.