Aegis Capital Corp. fined $550K for anti-money laundering and supervision rules violations

Sometimes the “cheapest” investment is the most costly. That’s the case for Aegis Capital Corp. which was fined $550,000 by the Financial Industry Regulatory Authority (FINRA) for failing to have adequate supervisory and anti-money laundering (AML) programs tailored to detect “red flags” or suspicious activity connected to its sale of low-priced securities.

Who was watching DVP trades?

Apparently, no one. FINRA found that Aegis’ supervisory system for trading in delivery versus payment (DVP) accounts did not satisfy its obligation to monitor and investigate trading in DVP accounts, particularly in low-priced securities transactions.

In a DVP account, customers buy and sell securities that are not held at the brokerage firm executing the trades, and the purchases and sales of those shares are then effected through the brokerage firm. During its investigation, FINRA found that Aegis failed to adequately monitor or investigate the trading in seven DVP customer accounts that liquidated billions of shares of low-priced securities, generating millions of dollars in proceeds for its customers. Several of these customers were foreign financial institutions executing transactions on behalf of their underlying customers, all of whom were unknown to Aegis. Aegis failed to identify these trades as suspicious even after its clearing firm alerted the firm to AML red flags and specific suspicious low-priced securities transactions. Add to that Aegis’ failure to implement an AML program adequate to detect red flags associated with these sales.

According to Susan Schroeder, FINRA’s executive vice president, Department of Enforcement, “It’s critical that firms have effective AML systems in place so that they can comply with their obligations to review suspicious transactions, including those involving trading in low-priced securities…member firms must have reasonably designed systems to ensure these rules are effectively implemented.”

The SEC also weighs in for another $750K

Aegis also agreed to pay a $750,000 penalty for anti-money-laundering violations to the Securities and Exchange Commission

Was lack of oversight worth more than $1 million?

Oversight matters, particularly when it comes to compliance. In this instance, faulty oversight cost Aegis $1.3 million in fines and penalties. A more careful gatekeeper might have spotted the red flags and safeguarded the Aegis from significant financial exposure. If you’re that gatekeeper, Patrina can help. We’ve built a business on helping organizations stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective and comprehensive, 8-module compliance solution, and compliant data capture, file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered.