The Securities and Exchange Commission, the Financial Industry Regulatory Authority (FINRA) and the Commodity Futures Trading Commission (CFTC) have announced settlements with Interactive Brokers related to anti-money laundering failures in which the registered broker-dealer agreed to pay penalties of $11.5 million, $15 million, and $11.5 million, respectively, for a total of $38 million in penalties paid to the three agencies.
The penalties are to settle charges that Interactive Brokers repeatedly failed to file Suspicious Activity Reports (SARs) for U.S. microcap securities trades it executed on behalf of its customers.
Broker-dealers like Interactive Brokers are required to file SARs for transactions suspected to involve fraud or a lack of an apparent lawful business purpose. According to the SEC’s order, over a one-year period, Interactive Brokers failed to file more than 150 SARs to flag potential manipulation of microcap securities in its customers’ account, some of the trading accounting for a significant portion of the daily volume in certain of the microcap issuers.
The SEC order finds that Interactive Brokers failed to recognize red flags concerning these transactions, failed to properly investigate suspicious activity as required by its written supervisory procedures, and failed to file SARs in a timely fashion even when suspicious transactions were flagged by compliance personnel.
“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,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “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 SEC’s order finds that Interactive Brokers violated the financial record-keeping and reporting provisions of the federal securities laws and a related SEC rule. Without admitting or denying the SEC’s findings, Interactive Brokers agreed to be censured, to cease and desist, and to pay an $11.5 million penalty. In its settlements with FINRA and the CFTC, Interactive Brokers agreed to retain an independent compliance consultant and to disgorge certain profits in addition to the penalties assessed by those agencies.