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Broker-dealer agrees to pay $1.3M for disregarding red flags, regulators say

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A registered broker-dealer agreed to pay $1.3 million to the SEC and FINRA in two separate court cases after intentionally failing to report suspicious activity, according to court filings.

Aegis Capital, a New York-based brokerage firm, was aware of red flags in accounts that traded in low-priced securities and did not properly disclose that information to regulators — even after custodians alerted the firm to the activity, the SEC says. BDs are required to file Suspicious Activity Reports, or SARs, for transactions suspected to involve fraudulent activity.

The transactions involved companies that were barely operating but were engaging heavily in promotional activities, prompting concerns about market manipulation, according to the SEC. The trades took place between 2012 and 2014, regulators say.

“Aegis failed to meet its AML obligations to report suspicious activity, including when it was faced with specific information alerting the firm to suspicious transactions,” says Antonia Chion, head of the SEC Enforcement Division’s Broker-Dealer Task Force.

Aegis agreed to retain a compliance officer and pay $750,000 in the SEC order and an additional $550,000 penalty in the FINRA settlement.

In separate orders, Aegis CEO Robert Eide and former anti-money laundering compliance officer Kevin McKenna agreed to pay penalties of $40,000 and $20,000, respectively, without admitting or denying the findings, the regulator says. Another former compliance officer, Eugene Terracciano, also failed to file SARs on the firm’s behalf, the SEC says.

“The referenced activity occurred more than four years ago, related to only seven DVP accounts, and resulted in no harm to any Aegis clients,” says Aegis lawyer Michael Ference, who is also representing Eide and McKenna. “Aegis has long since exited this business line, and the brokers involved are no longer with the firm.”

No lawyer is currently available for Terracciano, says the SEC.

Advisors should expect more regulatory requirements, enforcement actions and uncertainty in 2018, experts say.
December 11

“It’s critical that firms have effective AML systems in place so that they can comply with their obligations to review suspicious transactions, including those involving trading in low-priced securities,” says Susan Schroeder, FINRA’s head of enforcement. “The AML and supervision rules are important components of investor protection and market integrity, and member firms must have reasonably designed systems to ensure these rules are effectively implemented.”

For its fiscal year 2014, Aegis had revenue of approximately $123 million, the regulator says. The firm currently has $7.35 billion in assets under management, according to its Form ADV.

Aegis did not respond to requests for comment.

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