Subscribe to our mailing list

* indicates required







We seek to provide information, insights and direction that may enable the Financial Community to effectively and efficiently operate in a regulatory risk-free environment by curating content from all over the web.


Stay Informed with the latest fanancialish news.




Regulatory Sanctions

Dealing in Penny Stocks Without Adequate AML Policies and Procedures

June 18, 2019

by Howard Haykin



From November 2011 through December 2015 (the "Relevant Period"), a broker-dealer engaged in the penny stock business, effecting transactions for customers whose primary trading activity involved the deposit and prompt liquidation of low-priced securities (aka "penny stocks" or "microcap stocks"). Yet, throughout the Relevant Period, the firm and 2 of its senior executives allegedly failed to establish and implement AML policies and procedures reasonably designed to detect and report suspicious activity, including AML red flags, in connection with that penny stock business.



THE PLAYERS.    Tripoint Global Equities, a NY-based broker-dealer and FINRA member since 2007, conducts a general securities business, including by facilitating its customers' deposits and liquidations of penny stocks. The firm employs some 22 registered individuals who operate out of 5 domestic branch offices. Executive #1, who’s been with TriPoint his entire securities industry career, beginning in 2006, serves as TriPoint’s President, Chief Compliance Officer ("CCO"), and Anti-Money Laundering Compliance Officer ("AMLCO"). Executive #2 serves as Head of Trading ("Head Trader").



WHAT WENT WRONG.   According to FINRA, TriPoint and its Executives were aware at their account openings that certain customers intended to 'employ a toxic-debt financing business model' – i.e., to deposit penny stocks and immediately begin liquidating the positions. Nonetheless, TriPoint and its Executives failed to develop and implement an AML program to address the heightened risks inherent in these customers’ activities. In addition, the Firm, through its Executives, failed to monitor for, detect, or further investigate the red flags for penny stock transactions identified in its own AML plan. And because they did not adequately identify or consider such numerous red flags, they also failed to adequately consider whether to file Suspicious Activity Reports (“SARs”) as required by the Bank Secrecy Act, and they further engaged in the unlawful re-sales of approximately 16,907,900 shares of restricted securities of 2 penny stock issuers into the public market.


      POOR DESIGN OF TRIPOINT’S AML PROGRAM.    TriPoint's AML Plan was largely copied from FINRA's Small Firm Template and was not tailored to TriPoint's business and the regulatory risks of its penny stock liquidation business. The Firm, acting through Executive #1, did not appropriately tailor its AML program to address the increased risks associated with its customers' deposits and liquidations of penny stocks from their Firm accounts, inasmuch as …


  • It did not provide any specific guidance about how to identify the types of activity that constituted red flags or potentially suspicious activity that required escalation.
  • It did not identify with any specificity the steps that should be taken or processes that should be followed to effectively monitor for, detect, and investigate suspicious activity involving the liquidation of low-priced securities.
  • TriPoint did not provide any guidance about how to report red flags or other suspicious activity.



      DELEGATION OF AML RESPONSIBILITIES.    As AMLCO, Executive #1’s responsibilities included overseeing communication and training for employees, ensuring that the Firm maintained proper AML records, and causing the Firm to file SARs with FinCEN when warranted. He was also responsible for monitoring accounts for suspicious activity and investigating and reporting suspicious activities to the appropriate authorities. Furthermore, the Firm required all employees to notify Executive #1 upon observing any such activity.


That said, Executive #1 tasked Executive #2 (TriPoint’s Head Trader) with responsibility for day-to-day monitoring of customer accounts and trading activity for suspicious activities and red flags – and, in doing so, he seemingly relied on Executive #2 to conduct any independent review for suspicious activity and red flag, and to escalate any such activity to his attention.


Yet, TriPoint’s WSPs, which included the AML Plan as an Appendix, did not identify Executive #2 as a Designated Supervisor in the AML Plan or otherwise memorialize the delegation. In addition, Executive #1 never took steps to verify that Executive #2 was performing his delegated responsibilities properly - e.g., performing an independent review of the information Executive #2 monitored to determine if it raised any red flags for suspicious activity that Executive #2 had not escalated.


Executive #2, pursuant to being delegated with AML responsibility, reviewed the exception reports provided by TriPoint's clearing firm on a daily basis. However, these reports were not designed to detect market manipulation, prearranged trading, or patterns of activity indicative of pump and dump schemes. In addition, though Executive #2 was responsible for reviewing customers' trading activity for suspicious activity on a daily basis, he failed to take reasonable steps to detect and investigate customers' potentially suspicious transactions and respond appropriately.



To settle FINRA’s charges, …
  • TriPoint agreed to pay $134K in fines and disgorgement of commissions; the Firm also is prohibited for 12 months from directly or indirectly receiving, in any manner, any penny stock in any form, and it is required to submit a certification that its policies and procedures are reasonably designed with respect to its compliance with respect to applicable rules and regs.
  • Executive #1 and Executive #2 each agreed to pay a $10K fine, to serve a 30-day suspension during which time he may not serve in any principal capacity, and to requalify by examination as a principal.



This case was reported in FINRA Disciplinary Actions for May 2019.

For further details, click on...  FINRA AWC #2015048172801.