On August 10, the Securities and Exchange Commission (SEC) announced that Interactive Brokers LLC will pay an additional $11.5 million in penalties.
The Commodity Futures Trading Commission (CFTC) and the Financial Industry Regulatory Authority (FINRA) in parallel actions announced settlements with Interactive Brokers related to anti-money laundering failures.
In those instances, the registered broker-dealer agreed to pay penalties of $11.5 million and $15 million, respectively. The total amount paid in penalties to the three agencies is $38 million.
Interactive Brokers will pay the penalty to settle charges for repeatedly failing to file Suspicious Activity Reports (SARs) for U.S. microcap securities trades that it executed on behalf of its clients.
The law requires broker-dealers to file SARs for transactions suspected to involve fraud or lack of clear lawful business purposes. Interactive Brokers failed to file over 150 SARs to detect probable manipulation of microcap securities in its clients’ accounts over 12 months, according to the SEC’s order.
Interactive Brokers accused
Some of that trading accounted for a considerable segment of the daily volume in certain of the microcap issuers. The order states that Interactive Brokers failed to recognize red flags about these transactions. They failed to investigate suspicious activity properly as stipulated by the written supervisory procedures.
Interactive Brokers is also accused of failing to file SARs in a prompt manner even when the suspicious transactions were flagged by the compliance personnel. The Director of the SEC’s New York Regional Office, Marc P. Berger, explained:
“SAR filings are an essential tool in assisting regulators and law enforcement to detect potential violations of the securities laws; particularly in the microcap space. Today’s multi-agency settlement reflects the seriousness we place on broker-dealers complying with their SAR reporting obligations; and maintaining appropriate anti-money laundering controls.”
The Commission’s order states that Interactive Brokers violated provisions of the federal securities laws and a related SEC regulation. That violation affected the financial reporting and record-keeping provisions.
The brokers agreed to be censured, to cease operations, and pay $11.5 million in penalty. All that time they did not admit or deny the SEC’s findings.
While settling with the CFTC and FINRA, Interactive Brokers decided to retain an independent compliance consultant. Also, the firm agreed to disgorge certain profits together with the penalties issued by these agencies.