South Florida Arbitration & Litigation Lawyer Blog
Broker-Dealer and Investment Advisor Fraud, Misrepresentation and Mismanagement FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
Feburary 2012:
TradeStation Securities, Inc. (CRD #39473, Plantation, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $200,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to implement policies and procedures reasonably designed to detect and cause the reporting of suspicious activity in customer accounts as required by 31 U.S.C. 5318(g) and the implementing regulations thereunder. In particular, the firm failed to tailor its AMLCP to its business, which is to provide direct market access to equities, futures and foreign exchange market (forex) customers using a proprietary online trading platform. The findings also stated that the firm’s written AML procedures did not contain adequate provisions for the monitoring of trades to detect suspicious activity. In practice, the firm’s automated surveillance of trades was limited to two daily exception reports, a wash sales report and an odd/partial round lot report. Apart from these two exception reports, the firm did not utilize other automated surveillance modules to monitor trades for suspicious activity so that the firm may have failed to detect and report red flags concerning irregular patterns of trading activity, including evidence of market manipulation and other suspicious transactions. The findings also included that for monitoring flow of funds, the firm relied on a manual, transaction-by-transaction approach, conducted by the firm’s cashiers; each cashier was assigned a specific type of money movement to monitor (e.g., one would review outgoing wires and another would review incoming wires). The cashiers were instructed to notify the firm’s AMLCO by email when the flow of funds in an account looked suspicious. Additionally, the AMLCO selected one day a month at random and reviewed all wires for that particular day. The AMLCO recorded this information on a log, but did not begin recording this information until recently. The firm’s approach to monitoring flow of funds made it difficult to detect patterns of suspicious activity over time.
FINRA found that the firm failed to provide for adequate independent testing of its AML program. The firm’s independent consultants limited their tests to a review of the firm’s AML procedures and interviews of individuals responsible for AML compliance, an approach which lead to superficial findings presented in boilerplate language. Neither of the independent consultants noticed that the firm did not conduct automated trade surveillance and neither of the audit reports prepared by the independent consultants mentioned trade surveillance. In addition, FINRA determined that the firm failed to provide adequate AML training to personnel entrusted with implementing its AMLCP. The firm’s AML training consisted primarily of a 45-minute annual compliance seminar, only a segment of which was devoted to AML. (FINRA Case #2010023934201)