Lek Securities Corporation was recently found by the Financial Industry Regulatory Authority (“FINRA”) to have failed in implementing Anti-Money Laundering (AML) policies and internal controls to detect suspicious transactions and comply with the Bank Secrecy Act and regulations from the Department of the Treasury. Samuel Lek was the firm’s CEO, chief compliance officer (CCO), and AML compliance officer, who was responsible for the corporation’s supervisory system, including its certificate review process.
Under Lek’s direction, the corporation sold unregistered securities in transactions which were not eligible for any exemption from the requirements for registration. As a result, the corporation’s accounts liquidated microcap stocks and generated around $100 million of proceeds, which produced about $1.6 million in commissions for the corporation.
The FINRA findings stated that:
- Samuel Lek and the corporation failed to establish reasonable written supervisory procedures (WSPs) before liquidating microcap securities, to conduct a searching inquiry and determine the registration or potential exemption status of the customer’s resale of the shares.
- Lek Securities directly violated Section 5 of the Securities Act by:
- failing to conduct timely reviews of Financial Crimes Enforcement Network (FinCen) 314(a) information requests and never accessed the FinCen online portal to conduct mandated searches.
- failing to act with reasonable due diligence on behalf of its customers and their deposits in its response to red flags which were present when the deposits or trades of microcap securities were made.
- Lek Securities failed to conduct reasonable testing of its AML program or to conduct any substantive assessment of its microcap business. All tests that the corporation conducted were deemed to be, “narrow in scope and substantively inadequate.”
- Lek Securities failed to provide reasonable AML training to employees that were primarily responsible for compliance functions, including the review of customer accounts, microcap deposits, trading surveillance and investigations.
As a result of Lek Securities’ misconduct, microcap trades were made without any form of reasonable investigations or decisions to report the trades on a suspicious activity report (SAR). Altogether, these actions violated with anti-money laundering (AML) procedures, Section 5 of the Securities Act of 1933, and FINRA Rules 3310(a) and 2010.
Consequently, the corporation was fined $200,000, suspended from accepting or selling all forms of low-priced securities until FINRa receives proper certification that Lek Securities has sufficiently implemented the recommendations of an independent consultant, and required to retain independent consultants to review its current supervisory system.