Clearview Trading Advisors, Inc.
The findings stated that despite the firm’s significant business expansion toward the liquidation of low-priced securities, the firm and its GSP, the firm’s AML Compliance Officer (AMLCO), did not take reasonable steps to establish and implement an AML program tailored to that business. The GSP/AMLCP failed to update the firm’s AML procedures or otherwise review its controls to assess whether they were sufficient to detect and report suspicious activities. The firm and the GSP/AMLCO also failed to establish and implement a reasonable process to identify red flags specific to issuers of low-priced securities or patterns of suspicious trading within customer accounts.
The firm’s AML procedures provided that the GSP/AMLCO should monitor for potential money laundering by using exception reports or reviewing sufficient account activity to identify patterns of suspicious activity or red flags on a daily and ongoing basis. However, the firm did not use any exception reports or automated tools to monitor customer account activity for suspicious transactions. The AML procedures identified examples of red flags, including red flags specific to issuers of low-priced securities; customers with multiple accounts or backgrounds indicating possible criminal, civil, or regulatory violations; and accounts liquidating large volumes of low-priced securities and withdrawing funds from those trades. However, the procedures did not explain how the firm should monitor for and investigate those red flags.
The firm’s review for potentially suspicious transactions was limited to the GSP/AMLCO’s manual review of every transaction and reliance on third parties. However, the firm’s consulting agreement with one of its third parties did not provide that the company would monitor customer account activity, and the firm’s clearing agreement required it, as the introducing firm, to assume sole and exclusive responsibility for compliance.
The findings also stated that even though the firm’s AML procedures required another individual to monitor transactions executed by the firm’s AMLCO, no one at the firm reviewed and oversaw the customer transactions that the GSP/AMLCO executed. The firm and the GSP/AMLCO’s failure to implement an AML program reasonably tailored to its business resulted in the firm failing to identify, investigate, and report potentially suspicious transactions. The firm’s AML procedures also did not define what steps should be undertaken to identify accounts that posed heightened risk or what additional due diligence should be required before opening those accounts and before executing trades that raise red flags in those accounts.
The findings also included that the firm and the GSP/AMLCO, who was responsible for reviewing and approving customer deposits and sales of restricted securities under the firm’s Written Supervisory Procedures (WSPs), failed to establish and maintain a supervisory system, including WSPs, reasonably designed to achieve compliance with Section 5 of the Securities Act of 1933. The firm and the GSP/AMLCO primarily relied on a third-party company to conduct reviews of the securities being liquidated through the firm to determine whether they were registered or otherwise freely tradeable. This delegation was not formalized in the firm’s procedures or described in the agreement between the firm and the company. While most customers supplied the company with various documents to support their low-priced securities deposits, the GSP/AMLCO did not reasonably review those documents and did not monitor or ensure that the company was carrying out this obligation. In addition, the GSP/AMLCO, failed to conduct a reasonable inquiry prior to executing trades in low-priced securities in order to determine whether those securities were registered or subject to an exemption or safe-harbor from registration or to assess whether shares of securities liquidated through the firm were freely tradeable.
