According to the SEC’s order, over a one-year period, Interactive Brokers failed to file more than 150 suspicious activity reports to flag potential manipulation of microcap securities in its customers’ accounts, with some of the trading accounting for a significant portion of the daily volume in certain of the microcap issuers. The SEC said, “Interactive Brokers failed to recognize red flags concerning these transactions, failed to properly investigate suspicious activity as required by its written supervisory procedures, and failed to file suspicious activity reports in a timely fashion even when suspicious transactions were flagged by compliance personnel.”
“Suspicious activity reports are an essential tool in assisting regulators and law enforcement to detect potential violations of the securities laws, particularly in the microcap space,” said Marc P. Berger, director of the SEC’s New York regional office. The SEC fine was set at $11.5 million.
Finra’s complaint says the firm failed to investigate suspicious activity when it found it because it lacked sufficient personnel and a reasonably designed case management system. “Even after a compliance manager at the firm warned his supervisor that ‘we are chronically understaffed’ and ‘struggling to review reports in a timely manner,’ it took Interactive Brokers years to materially increase its anti-money laundering staffing or augment its systems,” Finra said.
In addition, in certain instances, Finra said the firm’s anti-money-laundering “staff identified suspicious conduct, including manipulative trading and other fraudulent or criminal activity. But the firm only filed suspicious activity reports regarding that suspicious conduct after it was prompted to do so by Finra’s investigation.”
Jessica Hopper, Finra executive vice president and head of enforcement, said, “Today’s action is a reminder that member firms must tailor their anti-money laundering programs to the firms’ business model and customer base, and also dedicate resources to programs commensurate with their growth and business lines.”
The Commodities Futures Trading Commission required Interactive Brokers to pay a civil penalty of $11.5 million. It also ordered the firm to disgorge $706,214 earned in part from its role in handling the accounts of Haena Park and her companies. In 2018, Park and her companies were ordered by a federal court in New York to pay more than $23 million in penalties and restitution for committing fraud and misappropriating investor funds, the commission said.
Earlier this year, Finra highlighted anti-money-laundering procedures as an area of concern.