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Regulatory Sanctions

AML Compliance Officer Sanctioned by SEC

July 9, 2018

by Howard Haykin


The former AML CO for Aegis Capital Corporation agreed to pay a $20K fine to settle SEC charges that, under his watch, the firm failed to file Suspicious Activity Reports (“SARs”) on hundreds of transactions when it knew, suspected, or had reason to suspect that the transactions involved the use of the broker-dealer to facilitate fraudulent activity or had no business or apparent lawful purpose.


RELATED CASES.   On March 28, 2018, FINRA and the SEC announced concurrent sanctions against Aegis for AML and supervision rule violations. [See Financialish, 3/29/18]  Under terms of the settlements, Aegis agreed to pay $550K in fines to FINRA and $750K in fines to the SEC, and to retain a compliance expert to help identify and correct the firm’s deficient practices. Yet, just 32 months earlier (in 2015), Aegis settled similar charges with FINRA - and in that settlement, Aegis agreed to retain an independent consultant to conduct a review of its practice and WSPs. [In fairness to Aegis, and for the purpose of full disclosure, I point out that the relevant period of this case pre-dates these settlements.]


SEC FINDINGS.    From September 2013 through early 2014, Aegis facilitated hundreds of transactions for DVP/RVP brokerage customers that involved fraudulent activity or had no business or apparent lawful purpose. Several of these DVP/RVP customers were foreign financial institutions that effected transactions on behalf of their underlying customers, all of whom were unknown to Aegis. And each of these transactions were ‘red flagged’ to Aegis’ AML CO in alerts issued by the firm’s clearing firms (hereinafter defined as “AML Alerts”). In particular, these AML Alerts involved transactions in which Aegis’ customers were:


  • selling large quantities of low-priced securities that comprised a significant percentage of the issuers’ daily trading volume and outstanding float;
  • trading shares of issuers who had changed names and business lines;
  • selling substantial shares of low-priced securities during periods of spikes in price and volume of the issuers’ securities and during paid promotional campaigns; and/or
  • trading in shares of issuers’ that had little or no market activity until the promotions began.


Yet, even though these AML Alerts raised many red flags – including many of the types of red flags listed in Aegis’ WSPs as examples of suspicious activities – the AML CO did not file SARs on Aegis’ behalf regarding these transactions and did not produce a written analysis or otherwise demonstrate that he had considered filing SARs for these transactions. Nor did he follow up with others to learn why firm employees or Aegis’ trade surveillance system had not brought the suspicious transactions identified in the AML Alerts to his attention.


Had the AML CO followed-up to learn why suspicious transactions were not being brought to his attention through the firm’s own internal systems, he would have learned that the firm’s trade surveillance system did not analyze DVP/RVP transactions for suspicious activity. Rather, he would have learned that these transactions were simply batch approved by the applicable Aegis personnel.


Given that Aegis’s AML CO was responsible for filing SARs on the firm’s behalf, and given his repeated failures to act upon suspicious transactions and to file SARs where appropriate, the SEC concluded that this AML CO “willfully aided and abetted and caused Aegis’ violations of Exchange Act Section 17(a) and Rule 17a-8 thereunder.”