Glendale Securities, Inc.

Glendale Securities, Inc. was fined $50,000 and ordered to retain an independent consultant to conduct a comprehensive review of the reasonableness of the firm’s policies, systems, procedures (written and otherwise), and training related to compliance with FINRA Rule 3310 and the requirements of the Bank Secrecy Act and regulations promulgated thereunder for monitoring, identifying, investigating, documenting, and responding to red flags of suspicious trading activity and potential market manipulation.

The firm failed to develop and implement an anti-money laundering (AML) compliance program reasonably designed to detect and report suspicious transactions.

The findings stated that the firm lacked reasonable written AML procedures for the surveillance of potentially suspicious transactions in customer accounts.

The firm’s written AML procedures failed to identify the need to monitor for sustained customer trading activity representing a significant portion of the daily trading volume in a thinly-traded or low-priced security, and customer trading activity with no discernable purpose or that appears to lack business sense. The AML procedures also failed to describe how supervisors were supposed to conduct their monitoring or the frequency of such monitoring.

In addition, the written AML procedures did not contain any other information about documenting the investigation of potentially suspicious trading activity.

Moreover, the firm’s manual review of the daily trade blotter to monitor for suspicious trading activity was unreasonable because it did not reflect patterns of trading across accounts or across multiple days. The blotter also did not reflect coordinated trading between firm accounts, sustained customer trading activity representing a significant proportion of the daily trading volume in a thinly-traded or low-priced security, or trading resulting in losses that might indicate a lack of discernable purpose and business sense or an intent to artificially support the price of a security.

In addition, the firm’s new set of exception reports that related to monitoring for suspicious trading only alerted it to evidence of marking the open, marking the close and suspicious order cancellations. The firm had no exception reports to alert it to evidence of other forms of suspicious and potentially manipulative trading.

Further, the firm’s written AML procedures did not contain any reference to these new exception reports or provide any information about how they should be used. The findings also stated that the firm failed to reasonably detect, investigate, and respond to potentially suspicious transactions by a corporate customer. The customer made numerous purchases of small blocks of the stock of an affiliated holding company that lacked indications of business sense. The customer’s purchases of the issuer’s stock consistently comprised the majority of total market volume for the issuer and these purchases occurred at a time when there was minimal market interest in the issuer, no positive issuer developments, and while both the issuer and the customer were the subject of negative news and reported negative cash flow on their financial balance sheets. On multiple trading days, the customer placed a series of small buy orders at increasing prices, and the issuer’s closing price improved from the prior trading day. The customer also engaged in multiple transactions with other firm customers, including accounts controlled by firm principals, on trading days when that activity comprised the majority of total market volume for the issuer. On those days, the issuer’s closing price improved from the prior trading day.