This Lake Forest, CA, online broker-dealer, with no relevant disciplinary history, agreed to accept FINRA findings that it failed to properly implement AML procedures necessary to detect potentially suspicious transactions.

[C-I Note: It would appear that much of the problems encountered by OC Securities, Inc., related to its heavy reliance on its clearing firm.  Either the firm was not confident enough to could conduct the necessary reviews, or it simply chose to delegate the reviews to another - in this case, Penson, its clearing broker, or it did not have the money to hire adequate staff to conduct the reviews - see "Sanctions" section, below.]

FINRA Finding of Alleged Violations. FINRA noted that OC used AML procedures that were created using a template for small firms available on the FINRA website - such procedures provide examples of red flags that would alert employees to suspicious activity. Nevertheless, OC's AML Procedures provided 25 examples of red flags that would alert employees to suspicious activity.  However, the Firm failed to monitor for at least 1 of the red flags listed in its AML procedures that would alert employees to suspicious activity:

• the customer, for no apparent reason or in conjunction with other red flags, engages in transactions involving certain types of securities, such as penny stocks....which although legitimate, have been used in connection with fraudulent schemes and money laundering activity.  (Such transaction may warrant further due diligence to ensure the legitimacy of the customer's activity.)
• the firm failed to monitor for at least 1 of the red flags listed in its AML procedures that would alert employees to suspicious activity, and the firm conducted no review of potentially suspicious transactions involving penny stocks.
• the firm’s procedures did not address red flags associated with the receipt and/or sale of physical certificates of  penny stocks and restricted securities by the firm or the type of due diligence required to be performed if a stock certificate was received.
• the firm improperly relied on its clearing firm to conduct due diligence inquiries with regard to stock certificates presented for deposit into the firm’s customer accounts.
• although the firm’s procedures listed the red flags that could indicate suspicious activity, many of which were raised by the transactions at issue, firm failed to review the trading activity to detect these potential red flags and to analyze them to determine if they were suspicious and reportable under the Bank Secrecy Act.
• firm accepted approximately 130 stock certificates representing nearly 440 million shares of 52 different stocks without taking any independent action to learn and/or verify the facts and circumstances to determine if the transactions were suspicious and reportable.

Fines and Sanctions. OC Securities received a $30K fine, although FINRA assessed a lower amount, after taking into consideration, among other things, the firm’s revenues and financial resources.  [AWC #2010021779801, as reported in FINRA Disciplinary Actions for Sept. 2011]