York Securities (New York, NY) agreed to pay a $65,000 fine for allegedly operating a deficient Anti-Money Laundering (AML) program, and for failing to detect, investigate and report suspicious activity in connection to a customer’s participation in a fraudulent stock-lending scheme through the firm’s accounts. 

    Corporation Applies to Open Brokerage Acct:  Associate is Flagged for a Criminal Past.   York allegedly was advised by its clearing firm that an individual involved with a corporation that completed an online application to open an account, had a “negative hit” - i.e., any criminal, regulatory or civil action history.  The application was submitted through firm's 'trading direct division'. 

Upon learning of the criminal action against the individual, the firm didn't directly confront the individual or anyone associated with the corporation.  Instead, it asked in an email only whether or not it was correct that the individual had had a material monetary problem with a government agency.  Individual confirmed the facts and stated the issue was resolved and there was no debt owed.  Firm agreed to open an account for the corporation, but on a cash-only basis - i.e., no margin privileges. 

    What, No Heightened Scrutiny?    According to FINRA, firm’s knowledge about the individual’s criminal record was a red flag that should have caused it to give heightened scrutiny to activity in the corporation’s account.  And, sure enough, during a 5-month period, shares of securities valued at more than $12 million were delivered into the corporation’s account - some in physical certificate form.  These shares were sold within days of being received into the account, with the proceeds wired to a domestic bank account in the name of the corporation. Firm didn't investigate any of these transactions or deem them to be suspicious and did not speak with  anyone at the corporation regarding the transactions.  

In another scenario, one day after a customer presents a share certificate, the customer submitted an LOA requesting that the shares be transferred from his account to the corporation’s account at York Securities.  One week later, the corporation sold the shares in separate sales transactions and the proceeds were wired to the corporation’s domestic bank account.  FINRA notes that the firm should have red-flagged this series of transactions:  ask additional questions about the transactions, and
consider filing SAR's.  Instead, firm apparently never followed up with the corporation to learn about the nature of its business activities and never obtained additional information regarding the fact it  identified itself as a "loan underwriter" in its new account documents. 

    CIP Procedures Not Followed.   The firm allegedly didn't follow its written customer identification program (CIP) procedures for individual customers domiciled in the United States.  Instead, York submitted customer names to its clearing firm to perform searches - which did not fulfill the firm’s CIP responsibilities.  The firm maintained no record evidencing how or that it had conducted verification procedures for customers who were individuals domiciled in the United States - i.e., whether the firm utilized documentary or non-documentary means for verification existed or were retained.  (FINRA Case #2008011762701)   [Finra November Disciplinary Action]