MM Global Securities, Inc.
MM Global Securities, Inc. was fined $450,000 and prohibited from providing market access to customers for two years and engaging in any business in which the firm provides market access to customers unless and until it certifies that it revised and enhanced its AML and supervisory procedures related to detecting and investigating suspicious trading activity and potential market manipulation.
The firm failed to establish and implement an AML compliance program reasonably designed to detect and cause the reporting of suspicious activity. The findings stated that the firm’s AML procedures did not identify any types of manipulative trading, such as wash trades, matched orders, spoofing, or layering, and the procedures did not describe how the firm would detect manipulative trading.
In addition, the firm never created parameters, including for trade review and wire transfers, to determine whether a transaction lacks financial sense or is suspicious because it is an unusual strategy for that customer, and the procedures did not describe how any parameters should be set.
Further, the firm’s AML procedures did not identify any exception reports to detect unusual transactions, did not describe how supervisors should use any reports, or what activity should trigger further action by supervisors or the firm.
Moreover, the firm did not use any exception reports or automated tools to detect suspicious activity, such as cancelled orders, patterns of trading across accounts or multiple days, coordinated trading, trading resulting in losses that might indicate a lack of rational economic motive, and other indicia of common forms of market manipulation. Instead, the firm relied almost exclusively on a manual review of the daily trade blotter to identify suspicious trading, which was not reasonable given the volume and complexity of trading by the firm’s customers.
As a result of the firm’s failure to implement a reasonably designed AML program, the firm failed to detect, investigate, and respond to red flags of suspicious activities. The firm also failed to investigate additional suspicious activity, even after that activity was brought to its attention.
The findings also stated that the firm failed to implement its Customer Identification Program (CIP) with respect to retail and institutional customer accounts located in foreign jurisdictions. The firm only collected basic information such as customer name, telephone number, address, and government-issued identification, and conducted an OFAC check when opening accounts. The firm failed to implement its CIP for at least four individual customers located in China and for a customer, which was also located in a jurisdiction that the U.S. designated as a major money laundering jurisdiction.
The findings also included that the firm failed to reasonably supervise for potentially manipulative trading. The firm’s procedures were not reasonably designed to detect potentially manipulative transactions, including patterns of such transactions over time. As a result, the firm failed to detect potential market manipulation by the customer, including matched orders in a company’s stock, and by the additional customers who sold the company’s stock on a single day.
In addition, the firm failed to reasonably address the potential market manipulation that was brought to its attention by FINRA and the firm’s routing and clearing broker. This included the firm unreasonably relying on unverified representations from the customer about its steps to prevent potential market manipulation in the future.
FINRA found that the firm failed to preserve and maintain certain instant messages and email communications of its registered representatives in violation of Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) thereunder. The representatives used an instant messaging service to communicate with each other and another firm regarding securities-related business. The representatives also used their personal email addresses to discuss securities-related firm business with the other firm. In addition, one of the firm’s representatives used a non-firm email address that the company provided to him to communicate with the other firm. The emails and instant messages with the other firm concerned the referral of prospective investors in the company’s Initial Public Offering (IPO) to the other firm and included emails containing applications for the investors to open new accounts at the other firm. The firm was aware of these communications but took no steps to preserve them.
