New York-based Cantor Fitzgerald & Co. will pay $7.3 million to settle charges that it sold billions of shares of unregistered microcap stocks.
The Financial Industry Regulatory Authority fined Cantor Fitzgerald $6 million and ordered $1.3 million in disgorgement payments for allegedly selling microcap shares without due diligence in violation of federal law.
In addition, Jarred Kessler, former executive managing director of equity capital markets, was fined $35,000 and suspended for three months from serving in a principal capacity, while equity trader Joseph Ludovico was fined $25,000 and suspended in all capacities for three months.
Finra also sanctioned Cantor Fitzgerald for failing to have adequate anti-money laundering programs connected to its microcap activity.
According to Finra, the firm did not have a supervisory system designed to vet microcap stocks that is was liquidating for SEC registration, resulting in the sale of billions of shares of thinly traded securities without due diligence, many of which were neither registered nor exempt from registration.
When the company expanded its microcap liquidation business in 2011, it allegedly failed to take steps to ensure that the sales were lawful. Finra found that Cantor Fitzgerald had insufficient guidance and inadequate training about when or how to inquire whether a sale was exempt and inadequate tools for supervisors to identify red flags associated with illegal, unregistered distributions.
According to Finra, the un-vetted sales were accompanied by a failure to implement adequate AML programs to detect patterns of suspicious activity related to the sales.
Kessler allegedly failed to respond adequately to red flags indicating that Cantor Fitzgerald’s supervisory system was insufficient to support the expanded microcap sales.
In settling the matter, Kessler, Ludivico and Cantor Fitzgerald neither admitted nor denied the charges.