Three Brothers Trading, LLC (dba Alternative Execution Group)
Three Brothers Trading, LLC (dba Alternative Execution Group) was censured and fined $100,000 and one of its Principals was fined $15,000, suspended a from acting as a principal for two months and ordered to complete 16 hours of AML-related continuing education. The firm and the Principal were deemed to having failed to establish and implement an AML compliance program (“AMLCP”) reasonably designed to detect sales of unregistered securities and cause the reporting of potentially suspicious transactions in microcap securities.
The findings stated that the Principal knew the firm’s Anti-Money Laundering Compliance Officer (“AMLCO”) lacked AML oversight experience relevant to his duties and did not take corrective action after becoming aware that the AMLCO had not performed his AML duties in a reasonable manner.
The firm’s AML procedures did not provide meaningful guidance regarding how the AMLCO was to identify or review red flags specific to the customer account business. The firm did not use any exception reports or automated tools to monitor customer account activity for suspicious transactions, including customer transactions in microcap securities.
The firm’s review for potentially suspicious transactions was limited to the AMLCO’s manual review of transactions. This manual review was unreasonable given that the AMLCO had no experience with customer account business and no training in reviewing for AML red flags in customer accounts. The firm’s failure to implement an AML program reasonably tailored to its business line resulted in the firm failing to identify or investigate potentially suspicious transactions.
In addition, the firm’s clearing firm contacted it about suspicious transactions that had not been flagged by the firm. Nonetheless, the Principal did not cause the firm to tailor its AML procedures to the firm’s business line or promptly act to strengthen the firm’s AML program and procedures.
The findings also stated that the firm and the Principal failed to establish and maintain a supervisory system reasonably designed to avoid becoming a participant in the unregistered sale of securities. Pursuant to the firm’s Written Supervisory Procedures (WSPs), the Principal delegated the responsibility for reviewing and approving microcap stock deposits and associated documentation to ensure compliance with applicable securities laws.
The AMLCO failed to ensure that reasonable inquiries were conducted to determine whether securities deposited into customer accounts for resale were registered or exempt from registration. The AMLCO repeatedly permitted deposits and resales of microcap securities despite missing documentation, such as proof of payment, appropriate legal opinions and other documents critical to determining whether microcap securities deposited were freely tradeable.
In an internal memo, the Principal detailed the AMLCO’s failings but did not take any action to improve the firm’s unreasonable supervisory system.
