A broker-dealer operating primarily in the retirement services market settled SEC charges for failing to file suspicious activity reports ("SARs") and to include sufficient information in the SARs that it filed.

In its Order, the SEC found that although the broker-dealer identified that bad actors had gained, or tried to gain, access to customer retirement accounts in the plans it was servicing, the broker-dealer either failed to file SARs or failed to include in SARs that it did file important identifying information that it had in its possession regarding the suspicious actors, including:

  • the time at which and method by which a suspicious actor took control, or planned to take control, of an account;
  • suspected bad actors' identifying information, such as names on bank accounts, phone numbers, and linked IP and email addresses; and
  • details concerning how funds obtained by bad actors were used after they were improperly withdrawn from the accounts of plan participants.

As a result of its findings, the SEC determined that the broker-dealer violated Section 17(a) of the Exchange Act and SEA Rule 17a-8 ("Financial recordkeeping and reporting of currency and foreign transactions").

To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a $1.5 million civil monetary penalty.

Commentary

Many recent AML enforcement actions against broker-dealers have focused on risks associated with low-priced securities. This enforcement action is a notable departure from that trend, and sends two important messages: 1) broker-dealers are expected to identify and report a broad range of suspected misconduct; and 2) SARs are expected to contain all information in the broker-dealer's possession that law enforcement considers pertinent.

Primary Sources

  1. SEC Press Release: SEC Charges Broker-Dealer for Failures Related to Filing Suspicious Activity Reports
  2. SEC Order: GWFS Equities, Inc.

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