South Florida Arbitration & Litigation Lawyer Blog
Common and Preferred Stock Fraud FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.
November, 2011:
Euro Pacific Capital, Inc. (CRD #8361, Westport, Connecticut) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $150,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to timely report quarterly statistical information concerning most of the customer complaints it received to FINRA’s then 3070 System.
The findings stated that the firm failed to maintain complete complaint files and did not enforce its WSPs pertaining to customer complaint reporting, and the Uniform Applications for Securities Industry Registration or Transfer (Forms U4) for those representatives who were the subject of the complaints were not timely updated. The findings also stated that the firm failed to enforce its written supervisory control policies and procedures that would test and verify that the firm’s supervisory procedures were reasonably designed with respect to the firm’s activities to achieve compliance with applicable securities laws, regulations and self-regulatory organization (SRO) rules; the firm’s annual NASD Rule 3012 report for one year did not comport with these procedures, and the firm failed to implement its supervisory control procedures to review its producing managers’ customer account activity. The findings also included that the firm prepared a deficient NASD Rule 3013 certification as it did not document the firm’s processes for establishing, maintaining, reviewing, testing and modifying compliance policies reasonably designed to achieve compliance with applicable securities laws, regulations and SRO rules.
FINRA found that the firm failed to timely file a Financial and Operational Combined Uniform Single (FOCUS) Report and Schedule I Reports. FINRA also found that the firm failed to preserve, in an easily accessible place, electronic emails for one of its representatives for almost a year. In addition, FINRA determined that the firm offered and sold precious metal-related products through an entity, but failed to develop, implement and enforce adequate AML procedures related to the business; the firm did not establish and implement policies and procedures reasonably designed to identify, monitor for and, where appropriate, file suspicious activity reports (SARs) for its business processed through its k(2)(i) account. Moreover, FINRA found that the firm failed to implement and enforce its AML procedures and policies related to its fully disclosed business through its then-clearing firm; aspects of its AML program that the firm failed to implement and enforce included monitoring accounts for suspicious activity, monitoring employee conduct and accounts, red flags and control/restricted securities. Furthermore, FINRA found that the firm’s procedures provided that monitoring would be conducted by means of exception reports for unusual size, volume, pattern or type of transactions; the firm did not consistently utilize exception reports made available by its then-clearing firm, and the firm did not evidence its review of the reports and did not note findings and appropriate follow-up actions, if any, that were taken. When notified by its clearing firm of possible suspect activity, on at least several occasions, the firm did not promptly and/or fully respond to the clearing firm’s inquiries. The findings also stated that such review was required by the procedures for employee accounts, but the firm did not maintain any evidence that such inquiries for employee accounts were conducted. The findings also included that the firm’s procedures contained a non-exclusive list of numerous possible red flags that could signal possible money laundering, but the firm did not take consistent steps to ensure the review of red flags in accounts.
FINRA found that the firm’s AML procedures reference that SAR-SF filings are required under the Bank Secrecy Act (BSA) for any account activity involving $5,000 or more when the firm knows, suspects, or has reason to suspect that the transaction involves illegal activity or is designed to evade BSA regulation requirements or involves the use of the firm to facilitate criminal activity; because the firm was not consistently reviewing exception reports or red flags, it could not consistently identify and evaluate circumstances that might warrant a SAR-SF filing. FINRA also found that the firm failed to establish and implement risk-based customer identification program (CIP) procedures appropriate to the firm’s size and type of business; and the firm failed to provide ongoing training to appropriate personnel regarding the use of its internal monitoring tools as AML program required. In addition, FINRA determined that certain pages of the firm’s website contained statements that did not comport with standards in NASD Rule 2210; FINRA previously identified these Web pages as being in violation of NASD Rule 2210, but the firm failed to remove such pages from its website. (FINRA Case #2009016300801).