Maxim Group LLC
Maxim Group LLC was fined $500,000 for failing to maintain and enforce written procedures, reasonably designed to achieve compliance with Section 5 of the Securities Act.
The findings stated that in practice, the firm conducted reviews only when customers deposited securities at the firm. For Delivery versus Payment/ Receive versus Payment (DVP/RVP) accounts, the firm relied on due diligence performed by the firms that held the accounts as agents for the customers.
Although the firm had an AML new account risk assessment procedure that identified DVP/ RVP accounts as a risk factor, it did not have WSPs specifically designed to address its business of executing transactions for DVP/RVP accounts with respect to Section 5 compliance, and the firm did not take reasonable steps to ensure that transactions were exempt from registration when such transactions were made in DVP/RVP accounts.
As a result, the firm executed sales of securities for DVP/RVP accounts when it lacked sufficient information to determine whether the securities were exempt from registration or complied with Section 5 of the Securities Act, such as information about the customers’ acquisitions of the shares or the customers’ relationships, if any, to the issuers of the securities.
Moreover, the firm failed to respond reasonably to red flags of potentially unregistered distributions, including by failing to investigate customers’ sales of low-priced securities on multiple days. The findings also stated that the firm failed to establish and implement AML policies and procedures reasonably expected to detect and cause the reporting of suspicious activity in low-priced securities. The firm became aware of deficiencies in its AML program through an examination by a different regulator, including the firm’s failure to monitor for red flags related to the liquidation of low-priced securities.
The firm undertook remedial efforts in response to that examination, including increasing its staffing responsible for AML compliance, revising its policies and procedures, adding additional automated monitoring systems, and implementing measures to minimize trading in microcap securities. However, the firm did not have any AML procedures that specifically addressed DVP/RVP accounts, and it did not collect the information required by its AML procedures from customers with DVP/RVP accounts. As a result, the firm did not reasonably investigate red flags of suspicious trading in numerous securities traded in customers’ DVP/RVP accounts.
The firm closed hundreds of alerts of suspicious trading in DVP/RVP accounts after conducting only minimal investigation and without sufficient analysis of whether the customers’ trading required filing of a SAR. In other instances, the firm closed alerts of suspicious activity, including in DVP/RVP accounts, without providing any commentary or analysis at all.
