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On August 29, the SEC announced that it had brought charges against a Chicago-based broker-dealer. The SEC alleged that between August 2012 and September 2020 the broker-dealer failed to file over 400 hundred legally required suspicious financial transaction reports related to over-the-counter securities transactions executed in the broker-dealer’s alternative trading system (ATS). According to the SEC’s order, it was found that the broker-dealer did not establish an anti-money laundering surveillance program until September 2020, despite having thousands of high-risk microcap and penny stock securities transactions executed daily on its ATS.
Daniel R. Gregus, Director of the SEC’s Chicago Regional Office, stated, “All SEC-registered broker-dealers have the responsibility to comply with the requirements of the Bank Secrecy Act, including the obligation to file SARs.”
Without admitting or denying that it violated Section 17(a) of the Securities Exchange Act and Rule 17a-8, the broker-dealer agreed to a censure and a cease-and-desist order, along with a $1.5 million penalty.
On May 20, the SEC announced charges against the broker-dealer affiliate of a national bank for allegedly failing to file Suspicious Activity Reports (SARs) in a timely manner in violation of the Securities Exchange Act and Rule 17a-8. According to the SEC’s order, the broker-dealer’s internal anti-money laundering (AML) transaction monitoring and alert system allegedly failed to reconcile the different country codes used to monitor foreign wire transfers due to an alleged failure to test a new version of the system. The broker-dealer also allegedly did not timely file SARs related to suspicious transactions in its customers’ brokerage accounts involving the wire transfers to or from foreign countries that it determined to be at a high or moderate risk for money laundering, terrorist financing, or other illegal money movements. Additionally, in April 2017, the broker-dealer allegedly failed to timely file additional SARs due to a failure to appropriately process wire transfer data into its AML transaction monitoring system in certain other situations. In addition to the $7 million penalty, the institution, without admitting or denying the SEC’s findings, agreed to a censure and a cease-and-desist order.
On September 15, the Massachusetts Office of the Secretary of the Commonwealth, Securities Division (Division) entered into two consent orders with a broker-dealer firm for alleged failure of supervisory and compliance procedures in violation of the Massachusetts Uniform Securities Act. According to one consent order, the firm failed to, among other things: (i) ensure that its agents with Massachusetts customers were registered in Massachusetts; (ii) have adequate policies and procedures in place regarding state-based requirements for supervisors; and (iii) supervise its agents in Massachusetts. The terms of the order require the company, among other things, to cease and desist from future violations of Massachusetts General Laws and Regulations, register its employees, enhance policy and procedures, and pay a $750,000 fine. The second consent order alleged that the firm failed to, among other things: (i) have reasonable policies in place to detect and monitor a broker-dealer agent’s social media accounts; (ii) “reasonably monitor internal communications between and among its registered persons”; and (iii) adequately discipline an employee after gaining knowledge of his personal use of social media in violation of state laws. The order requires the firm to permanently cease and desist from future violations of Massachusetts General Laws and Regulations, employ a third-party consultant to supervise the firm’s practices regarding employee trading and social media usage, conduct an annual compliance review, and pay an administrative fine of $4 million.
On December 22, 2020, the Rhode Island Department of Business Regulation extended interim guidance permitting mortgage loan originators, lenders, loan brokers, and exempt company registrants to work from home, even if the home is not a “licensed branch” or located outside of Rhode Island (previously covered here, here, and here.) To take advantage of this exemption, the individual must maintain certain specified data security provisions. This extension is set to expire March 31, 2021.
On December 16, the enforcement section of the Massachusetts Securities Division filed an administrative complaint against a broker-dealer online trading platform alleging the company violated various state laws by using “aggressive tactics” to gain inexperienced investors. According to the complaint, the company, among other things, (i) used advertising techniques, including using young actors, to target younger individuals (with a median customer age around 31 years old) with little to no investment experience; (ii) failed to implement policies and procedures that were “[r]easonably [d]esigned to [p]revent and [r]espond to [o]utages and [d]isruptions on its [t]rading [p]latform,” resulting in nearly 70 outages throughout 2020; (iii) used “gamification strategies,” such as confetti raining down on the screen after a trade or requiring customers to “tap” a fake debit card to increase their position on the waitlist, to “lure customers into consistent participation” with the platform; and (iv) failed to review and supervise, in accordance with its own procedures, the approval of options trading accounts. The complaint asserts that the company’s tactics failed to adhere to the fiduciary conduct standard required of broker-dealers in the state of Massachusetts since the adoption of amendments in March, with enforcement beginning on September 1. Massachusetts is seeking an injunction, restitution, disgorgement, and administrative fines.
On September 28, the Rhode Island Department of Business Regulation, Banking Division, extended previous guidance (previously covered here and here) issued to mortgage loan originators, lenders, loan brokers, and exempt company registrants. The guidance permits working from home, even if the home is located outside of Rhode Island or is not a licensed branch, so long as specified data security provisions are met. The department extended this guidance until December 31, 2020.
On August 31, the Colorado Department of Regulatory Agencies updated its Safer at Home: Additional Guidance for Real Estate Brokers & Servicers, previously covered here and here, to note that the executive order creating a statewide mask ordinance was extended by Executive Order D 2020 164. Real estate businesses and professionals are encouraged to review the guidance, which responds to frequently asked questions related to real estate services, including field services.
On July 30, South Carolina Department of Consumer Affairs updated and extended its interim guidance for mortgage brokers, previously covered here. The interim guidance permitting mortgage loan originators to work remotely will be effective until rescinded. The Department will provide fifteen days’ notice to affected businesses before rescinding the guidance.
Louisiana Office of Financial Institutions extends emergency declarations to non-depository entities
On July 24, the Louisiana Office of Financial Institutions extended emergency declarations for residential mortgage lenders, check cashers, bond for deed escrow agents and repossession agents, brokers and lenders licensed under the Louisiana Consumer Credit Law and Deferred Presentment and Small Loan Act, and pawnbrokers. The orders were previously covered here. Such entities are granted the authority to temporarily close licensed locations within Louisiana or to temporarily close and/or relocate to another location within the state. Mortgage loan originators are permitted to work from home, whether located in Louisiana or another state, even if the home is not registered with the LOFI. The declarations also provide instructions for notifying the LOFI of a temporary location change. The declarations will remain in effect as long as there is a public health emergency relating to Covid-19, or until rescinded or replaced.
On July 19, the Colorado governor issued Executive Order 2020 141, which extends Executive Order D 2020 015, as amended by several earlier orders, until August 18, 2020. Executive Order D 2020 015 authorizes the Department of Regulatory Agencies to promulgate and issue emergency rules extending the expiration date of licenses issued by the Division of Banking for money transmitters and licenses issued by the Division of Real Estate for real estate brokers.