Wilson-Davis & Co., Inc.
Wilson-Davis & Co., Inc. was fined $500,000, ordered to retain an independent consultant to conduct a comprehensive review of the adequacy of its compliance with its supervisory and anti-money laundering (AML) compliance obligations in connection with its market making activities in low-priced securities and sale of low-priced securities for firm customer accounts and subjected to a business line restriction that it shall not accept for deposit for any firm customer account any low-priced security until it certifies to FINRA that it has implemented the recommendations of the independent consultant.
Three of the firm’s Principals also consented to the sanctions and to the entry of findings that they failed to establish, maintain and enforce a supervisory system, including WSPs, reasonably designed to achieve compliance with applicable securities laws and regulations and FINRA rules. The findings stated that the firm’s WSPs did not explain how the firm’s trading activity would be supervised to ensure compliance with its obligation to avoid engaging in or facilitating manipulative behavior or what should be done if such activity was detected.
Moreover, the firm’s system of reviewing trading activity was limited and could not be reasonably expected to detect and prevent manipulative trading activity in microcap securities, such as the potentially suspicious or manipulative trading in Nugene International, Inc. (ticker, “NUGN”).
In addition, the firm, acting through its Principals, failed to reasonably supervise a registered representative’s trading activities in NUGN to ensure compliance with federal securities laws and regulations and with applicable FINRA rules. The firm and its Principals failed to detect or otherwise ignored numerous red flags of potentially manipulative activity by the representative and his customers related to NUGN, including failing to reasonably detect and respond to activity identified as indicative of potential manipulation by the firm’s WSPs.
The findings also stated that the firm and its Principal, who was responsible for the firm’s AML program, failed to establish and implement AML policies and procedures reasonably designed to detect, investigate and report, if necessary, suspicious activity related to the firm’s microcap liquidation business. The firm’s AML policies failed to describe how the firm, or its registered representatives, should review or monitor customer stock deposits or subsequent trading activity to detect and investigate various red flags of potentially suspicious activity.
Moreover, other than instructing registered representatives to escalate red flags of potentially suspicious activity to its Principal, the firm’s AML policies failed to describe how the firm would investigate red flags or how, if at all, the identification and investigation of suspicious activity would be documented by the firm or its registered representatives. Although the Principal was responsible for reviewing and approving stock deposits, he only conducted limited reviews of stock deposit activity at the firm and he did not regularly review stock deposits for red flags of potentially suspicious activity.
In addition, the Principal failed to ensure that the firm’s trading activity was monitored with a view toward detecting, investigating and reporting, if necessary, potentially manipulative trading. The Principal’s failure to implement a reasonable AML program resulted in numerous red flags related to the firm’s customers’ deposit and liquidation of NUGN stock to go undetected and uninvestigated, despite that the firm’s own AML policies listed many red flags indicative of potentially suspicious activity.
The findings also included that the firm and its Principal, in response to a request for documents and information, provided FINRA with an inaccurate or misleading spreadsheet purporting to represent a contemporaneous annotated record of the firm’s and the Principals’ daily review, including handwritten notations, and supervision of the firm’s trading activity in NUGN, when, in fact, no such responsive documents evidencing the review existed. The three Principals are serving suspensions in various lengths.
