Interactive Brokers, LLC, a major U.S. broker-dealer in Greenwich, Connecticut, agreed to pay a total of $38 million in fines to resolve claims that it failed to file suspicious activity reports (SARs) and comply with anti-money laundering (AML) rules.
In three separate proceedings, Interactive Brokers agreed to pay penalties of $11.5 million to the Securities and Exchange Commission (SEC), $15 million to the Financial Industry Regulatory Authority (FINRA), and over $12 million to the Commodity Futures Trading Commission (CFTC).
SEC Requires $11.5 million in Penalties
The SEC penalized Interactive Brokers $11.5 million for failing to file more than 150 SARs for U.S. microcap securities trades over the course of a year and failing to file others in a timely fashion. Broker-dealers are required to file SARs for transactions suspected to involve fraud or a lack of an apparent lawful business purpose, and Interactive failed to follow its written supervisory procedures to recognize red flags of market manipulation in customer accounts and to investigate the suspicious activity.
Marc P. Berger, Director of the SEC’s New York Regional Office, stated that “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.” See the full statement here.
FINRA Requires $15 million in Penalties
According to FINRA, Interactive cleared more transactions for foreign financial institutions than any other U.S. broker-dealer from 2013-2018. Despite this growth, FINRA claims Interactive failed to allocate appropriate resources to meet its AML obligations to report suspicious transactions under the Bank Secrecy Act, citing staffing problems and poor internal controls. Interactive failed to properly monitor hundreds of millions of dollars in customer wire transfers for AML issues.
FINRA claims that “As a result of these failures, Interactive Brokers did not reasonably surveil, detect and report many instances of suspicious activity that were Ponzi schemes, market manipulation schemes and other misconduct.” See here.
CFTC Requires more than $12 Million in Penalties
In the very first case to charge Bank Secrecy Act violations (under Regulation 42.2), the Commodity Futures Trading Commission (CFTC) filed an action against Interactive for its failure to appropriately supervise its people in the handling of several trading accounts and having inadequate reporting procedures under AML laws. The CFTC’s order requires a civil penalty of $11.5 million for repeated procedural failures over the course of four years. Although Interactive had adequate written policies, it did not ensure its AML program was adequately addressing suspicious activity.
Further, Interactive must pay an additional $706,214 of disgorged profits due to Interactive’s participation as the futures commission merchant (FCM) in the Haena Park case [See CFTC Press Release No. 7858-18] where Park was ordered to pay more than $23 million in penalties and sent to prison for committing fraud and misappropriating investor funds. In addition to the monetary penalty, Interactive must take remedial actions including hiring a third-party compliance consultant to monitor AML and supervisory issues. See here.
Michael Best’s Securities & Capital Markets team has experts who advise broker-dealers, investment advisors, and public companies on compliance with the SEC, CFTC, and FINRA regulations. Please do not hesitate to contact a member of the Securities & Capital Markets team for additional information or assistance with regulatory or AML matters.