FINRA Fines Oppenheimer $1.4 Million for Sale of Unregistered Penny Stocks
On August 5, 2013, the Financial Industry Regulatory Authority (“FINRA”) announced that it had fined Oppenheimer and Co., Inc. $1,425,000 for allowing the sale of unregistered stock of penny companies, and for its failure to have an adequate anti-money laundering (AML) compliance program in place to detect and report suspicious penny stock transactions.
Under the terms of the settlement agreement, Oppenheimer is also required to retain an independent consultant to conduct a comprehensive review of the adequacy of its penny stock and AML policies.
FINRA found that from Aug. 19, 2008, to Sept. 20, 2010, branch offices of Oppenheimer sold billions of shares of twenty penny stocks that may not have been registered, or were not eligible for an exemption from registration.
The Oppenheimer Client Accounts
In each case, customers deposited large blocks of these stocks shortly after opening their accounts, and then liquidated the positions and transferred the proceeds. FINRA concluded that these transactions sported additional red flags that should have prompted further investigation by Oppenheimer to determine whether the securities were in fact unregistered.
Systems and Controls
FINRA found that Oppenheimer’s systems and procedures for penny stock transactions were inadequate, and were not sufficient to determine whether stocks were restricted or freely tradable. The broker-dealer also failed to conduct adequate supervisory reviews to determine whether the securities were registered, and its AML program failed to monitor patterns of suspicious activity associated with the penny stock trades.
Lack of Due Diligence
In addition, Oppenheimer neglected to perform adequate due diligence on a correspondent account for a customer that was a broker-dealer in the Bahamas, and therefore a Foreign Financial Institution under the Bank Secrecy Act; the firm’s failure contributed to Oppenheimer’s failure to understand the nature of the customer’s business and the anticipated use of the account, which was to sell securities on behalf of parties not subject to Oppenheimer’s AML review. According to FINRA, this is the second time Oppenheimer has been found to have violated its AML obligations.
The regulator did not name the Bahamas broker-dealer, nor did it provide a list of the penny stocks involved in the potentially fraudulent sales.
In agreeing to a settlement, the firm neither admitted nor denied the charges, but consented to the entry of FINRA’s findings, and to fines in the amount of $1,400,000.
Brad Bennett, head of FINRA’s Department of Enforcement, said, “Broker-dealers are required by federal securities laws and FINRA rules to monitor customers’ accounts so that those accounts are not used for illegal activities, such as money laundering and penny stock schemes that can cause considerable harm to investors.”
Investors can obtain information about the disciplinary record of any FINRA-registered broker or brokerage firm by using FINRA’s BrokerCheck at www.finra.org/brokercheck. Investors may also find copies of disciplinary actions in FINRA’s Disciplinary Actions Online database.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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