Glendale Securities, Inc.
Glendale Securities, Inc. was fined $155,000 and ordered to retain a consultant to review and revise its anti-money laundering (AML) related procedures to appropriately tailor them to its microcap stock liquidation business model. The NAC affirmed the findings and modified the sanctions imposed by the Office of Hearing Officers (OHO).
The sanctions were based on findings that the firm and its AMLCO failed to establish and implement reasonable AML policies and procedures and failed to detect, investigate and report, where appropriate, suspicious activity. The findings stated that the firm its AMLCO did not adequately investigate liquidations of stocks by firm customers. Significantly, despite numerous red flags, the firm’s AMLCO did no investigation for promotional activity while customers were trading and realizing substantial gains.
The failures to investigate with respect to these liquidations lasted for almost a year and involved numerous customers and millions of dollars of liquidation transactions. The firm’s and its AMLCO’s AML deficiencies allowed misconduct to occur that affected market integrity and transparency, and the investing public. The findings also stated that the firm and its AMLCO failed to comply with the firm’s customer identification program (CIP) to verify the identities of a registered representative’s customers.
The representative testified that he dealt primarily with a customer representative and his assistant when he opened the accounts for other customers. The customer representative and his assistant provided the documents used to verify the customers’ identities. The registered representative did not meet the customers in person and communicated by email with only a few of them. These facts, along with the other red flags associated with that stock, presented a risk that the firm could not verify the customers’ identities with documentary means alone and, accordingly, the firm’s CIP required the use of non-documentary means of identification. The AMLCO, who was primarily responsible for implementing the firm’s CIP as part of its AML program, did not require non-documentary means of identification for these customers.
The findings also included that the firm and its AMLCO failed to conduct adequate due diligence on a bank and the customers it introduced. The firm and its AMLCO failed to perform the required risk-based due diligence on the accounts opened through the bank. Rather than conduct their own due diligence on the accounts introduced by the bank, the firm and its AMLCO relied on the bank ensuring AML compliance for these customers, including fulfilling the CIP obligations with respect to the accounts opened for undisclosed customers.
FINRA also found that the firm and its AMLCO failed to reasonably supervise a registered representative. The AMLCO approved the account opening documents and deposits for the registered representative’s Asia-based customers and was responsible for reviewing the representative’s email. The AMLCO did not ask the representative about how he communicated with the customers, including whether the customers understood the representative’s written communications.
While the AMLCO knew the representative had translated portions of the firm’s account opening documents for the customers, he took no steps to ensure the accuracy of these translations and asked no questions about whether the customers understood the portions of the documents the representative did not translate. In his review of the representative’s emails, the AMLCO conducted word searches in English. The AMLCO’s searches were ineffective to identify red flags in the representative’s communications with the customers.
