The Securities and Exchange Commission announced its recent settlement of charges against securities broker-dealers Chardan Capital Markets LLC and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS) for failure to report suspicious sales of billions of penny stock shares.
Securities brokerage firms are required under law to timely file Suspicious Activity Reports (SARs) for suspected fraudulent transactions.
Per the SEC’s allegations, from October 2013 to June 2014, Chardan, an introducing broker-dealer, liquidated more than 12.5 billion penny stock shares for seven of its customers and ICBCFS cleared the transactions.
Neither Chardan nor ICBCFS filed a SARs notwithstanding the transactions were suspicious and raised red flags.
The SEC charged Chardan and ICBCFS for violations of the Securities Exchange Act and SEC financial record keeping and reporting, as well as Chardan’s anti-money laundering (AML) officer, Jerard Basmagy, for aiding and abetting the violations. In the standard SEC neither admit nor deny settlement, Chardan agreed to pay a $1 million civil penalty, ICBCFS $860,000, and Basmagy, the AML Officer, $15,000, which is a Tier 1 penalty. Basmagy further agreed to industry and penny stock bars for a minimum of three years.
Both the SEC and FINRA for years have been cracking down on penny stock share liquidations in light of money laundering and stock manipulation concerns. In my extensive experience as a SEC defense attorney, even when broker-dealers ask the right questions, perform sufficient due diligence and file SARs where appropriate, it never seems to be enough for the securities regulators. In my humble opinion, the SEC and FINRA just don’t like this space and have attempted to shut it down by sending the not so subtle message to the broker-dealer community that doing this business carries significant regulatory risk.
David Chase, a SEC defense attorney, is the principal of his SEC defense law firm, David R. Chase, P.A., located in Fort Lauderdale, Florida. Mr. Chase defends SEC and FINRA investigations and enforcement actions around the nation. If you are under SEC investigation or a FINRA inquiry, call SEC defense attorney David Chase for a confidential, no-cost initial consultation at: (800) 760-0912, or you may contact Mr. Chase at: firstname.lastname@example.org.