Securities Industry Commentator by Bill Singer Esq

Many broker-dealers have voiced the opinion that because even unfounded customer or employer complaints can be included in BrokerCheck records, they can indeed be more harmful than helpful. But Finra believes BrokerCheck's potential to save investors from unscrupulous broker-dealers more than makes up for any broker-dealer having a false claim listed in their record.

In May 2015, Francisco Jose Ortiz processed a customer wire transfer based on email instructions despite knowing that an unknown imposter had compromised the customer's email account and that the wire request was fraudulent. In order to process the wire transfer, Ortiz falsely represented on a Wells Fargo Advisors LLC ("WFA") wire transfer request form that the request had been orally confirmed with the customer causing WFA's books and records to be inaccurate.

In late 2012, ICBCFS started a new business line involving the clearance and settlement of equity transactions. In connection with this new business, the Firm began carrying and clearing for dozens of new correspondent broker-dealers, including thousands of new introduced customers. Many of these new introduced customers began purchasing and selling millions of dollars' worth of low-priced equity securities ("penny stocks") within a few months after the business was launched. 

From January 2013 through at least September 2015 (the "Relevant Period"), ICBCFS's anti-money laundering ("AML") program was not reasonably designed to detect and cause the reporting of potentially suspicious transactions with respect to this new business line. Despite clearing and settling the liquidation of more than 33 billion shares of penny stocks, ICBCFS did not have in place procedures reasonably designed to ensure that penny stock transactions were sufficiently scrutinized for potentially suspicious activity. 

Prior to June 2014, the Firm had no surveillance reports designed to monitor potentially suspicious liquidations of penny stock shares. As for the exception reports that the Firm did have in place, ICBCFS's AML procedures did not require its employees to document their review of such reports and the Firm did not track instances in which potentially suspicious trading activity was identified. After being placed on notice in or about June 2014 by the U.S. Securities and Exchange Commission ("SEC") that its surveillance system failed to detect potentially suspicious penny stock liquidations by introduced customers, ICBCFS did not amend its AML program to adequately monitor this activity. Although the Firm implemented two new surveillance reports that targeted penny stock transactions, ICBCFS failed to amend its written AML procedures to provide guidance to its employees regarding the purpose of the reports, how to use the reports and how to escalate matters of concern to Firm senior management for further review. Moreover, ICBCFS did not require its employees to document either their review of the new Firm-issued surveillance reports or escalations to senior management of issues of concern. Because of these deficiencies, ICBCFS did not track patterns of potentially suspicious trading activity over extended periods of time.

As a result of these deficiencies in its AML program, ICBCFS failed to reasonably detect and investigate red flags of potentially suspicious penny stock liquidations that may have required the filing of a suspicious activity report ("SAR"), despite clearing the liquidation of over 33 billion penny stock shares valued in excess of $210 million during the Relevant Period. By failing to develop and implement an AML program that was reasonably designed to detect and report suspicious activity, the Firm violated FINRA Rules 3310(a) and 2010. 

ICBCFS also failed to conduct appropriate AML independent testing that addressed the primary AML risks associated with the Firm's clearing of penny stock transactions, in violation of FINRA Rules 3310(c) and 2010. 

In addition to the AML-related violations, ICBCFS had customer reserve hindsight deficiencies, in violation of Section 15(c) of the Securities Exchange Act of 1934 (the "Exchange Act"), Rule 15c3-3(e) thereunder, and FINRA Rule 2010. The Firm also performed inaccurate customer reserve formula computations, in violation of Section 17(a) of the Exchange Act, Rule 17a-4(b)(5) thereunder, and FINRA Rules 4511(a) and 2010. 

The Firm also performed inaccurate segregation calculations and committed possession or control violations, in violation of Section 15(c) of the Exchange Act, Rule 15c3-3 thereunder, and FINRA Rule 2010, and improperly used three foreign custody accounts without first requesting the SEC to designate the custodial accounts as good control locations, in violation of Section 15(c) of the Exchange Act, Rule 15c3-3(c)(4) thereunder, and FINRA Rule 2010. Furthermore, the Firm filed three inaccurate FOCUS Reports, in violation of Section 17(a) of the Exchange Act, Rule 17a-5(a)(2) thereunder, and FINRA Rule 2010, and employed an individual who worked as a Financial and Operations Limited Principal but who lacked the appropriate license, in violation of NASD Rule 1021(a) and FINRA Rule 2010. 

Finally, the Firm's supervisory system and written procedures governing compliance with the possession or control provisions of Section 15(c) of the Exchange Act and Rule 15c3-3 thereunder were not reasonably designed, in violation of NASD Rule 3010(a) and (b) and FINRA Rules 3110(a) and (b) and 2010. 

Arizona Men Charged In Manhattan Federal Court With $23 Million Fraud And Money Laundering Scheme In Connection With Purported Fundraising For Numerous Scam Political Action Committees (DOJ Press Release)
https://www.justice.gov/usao-sdny/pr/arizona-men-charged-manhattan-federal-court-23-million-fraud-and-money-laundering
William Tierney a/k/a "Bill Johnson," and Robert Tierney were each charged in a complaint filed in the United States District Court for the Southern District of New York with one count of wire fraud conspiracy; mail fraud conspiracy; conspiracy to commit money laundering; and conspiracy to engage in monetary transactions in property derived from specified unlawful activity in connection with their alleged fraud of tens of thousands of donors to at least nine political action committees that they controlled, operated, and influenced and for which they raised over $23 million between 2014 and 2017, and more than $50 million in the past 10 years. Prosecutors allege that virtually all of the funds raised was either paid to the scheme participants or used to perpetuate the fraud through additional telemarketing, fundraising, and overhead expenditures.  READ the FULL TEXT Complaint https://www.justice.gov/usao-sdny/press-release/file/1063966/download

• Securities Industry Commentator
• Bill Singer
• ICBCFS