FACTS and Voilative conduct
During the period from January 2009 through June 2011 (“the review period”), Hume was A C A P ‘s designated Anti-Money Laundering ( ” A M L “) Compliance Officer ( ” A M L C O ” ). Hume was also the designated supervisor for the creation and maintenance of the Firm’s policies and procedures. A C A P ‘s Written Supervisory Procedures (“WSPs”) contained the Firm’s A ML Program and were last updated in Apr il 2009. The A M L Program contained a list of red flags
that may suggest suspicious activity and the WSPs stated that the A M L C O was responsible for monitoring activity at the Firm for suspicious activity.
During the review period, the majority of the Firm’s business was the deposit of large blocks of shares, primarily thinly traded penny stocks, and subsequent sale of those shares (“liquidations”). Customers often opened a new account with a deposit of physical certificates and sold the shares soon thereafter. Some customers had multiple accounts through which they deposited and liquidated their shares.
ACAP’s AML Program specified “risk indicators” that may have identified this type of activity as suspicious activity. For example, the WSPs included such indicators as: “The customer maintains multiple accounts, or maintains account in the names of family members or corporate entities, for no apparent business purpose or other purpose”’ and “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, Regulation ‘S’ (Reg S) stocks, and bearer bonds, which although legitimate, have been used in connection with fraudulent schemes and money laundering activity. (Such transactions may warrant further due diligence to ensure the legitimacy of the customer’s activity.) ” The WSPs included among other “red flags” that may indicate a customer selling unregistered securities, “A customer opens a new account and delivers physical certificates representing a large block of thinly-traded or low-priced securities.“
In mid-2009, F INRA staff had conversations with Hume regarding the necessity of monitoring for, detecting, and investigating suspicious activity to determine whether to file a Suspicious Activity Report ( “SAR” ). Prior to this time, Hume did not establish adequate systems or procedures to monitor accounts for suspicious activity. Hume himself did not sufficiently monitor accounts for which he was the registered representative or any of the other accounts of the Firm for suspicious activity. Nor did Hume delegate this responsibility to any other employee of the Firm.
The Firm failed to establish and maintain an adequate system to monitor for, detect and investigate suspicious activity to determine whether it was necessary to file a SAR. Nor did the Firm have an adequate system or procedures to report suspicious activity. As a result, despite 2 the presence of those and other indicators of suspicious activity, A C AP and Hume had never filed a SAR prior to September 2009.
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