Interactive Brokers LLC Submits to SEC, FINRA, and CFTC Penalties Totalling $38 Over Widespread AML Failures

Mintz - Securities & Capital Markets Viewpoints

Interactive Brokers LLC (“Interactive Brokers”) recently settled with three separate regulatory entities for a total of $38 million, without admitting or denying the findings. According to the SEC, Interactive Brokers failed to file at least 150 Suspicious Activity Reports (SARs) in connection with the potential manipulation of microcap securities in its customers’ accounts, leading to the payment of $11.5 million in fines. The same alleged activity constituted violations of anti-money laundering (AML) rules resulting in $15 million in fines payable to FINRA and $12 million to the CFTC.

Some of the activity cited by the SEC that should have resulted in SARs filings included:

  • Interactive Brokers’ customers deposited large blocks of microcap securities followed by sales of those securities and the rapid withdrawals of the proceeds from the customers’ accounts.
  • Customer sales accounted for a significant portion of the daily trading volume in certain U.S. microcap securities issuers.
  • Interactive Brokers failed to review at least 14 deposits of U.S. microcap securities where the security at issue had been the subject of an SEC trading suspension.

With respect to the AML violations, FINRA and the CFTC determined that:

  • Interactive Brokers’ customers wired hundreds of millions of dollars, including from countries recognized as “high risk”, without being surveilled for money laundering concerns.
  • Interactive Brokers lacked sufficient personnel and a reasonably designed case management system to investigate suspicious activity, despite being warned of such deficiencies by a compliance manager.
  • Interactive Brokers failed to establish and implement policies, procedures, and internal controls reasonably designed to cause the reporting of suspicious transactions as required by the Bank Secrecy Act (BSA).
  • Even where Interactive Brokers maintained written policies, it did not commit adequate resources to monitor, detect, escalate, and report suspicious activity in practice, commensurate with the size and scope of its business.

The FINRA and CFTC settlements carried with them the additional penalty that Interactive Brokers must retain an independent compliance consultant and disgorge $700,000 in profits. AML compliance has been singled out as a 2020 examination priority of both the SEC and FINRA. This settlement represents the first enforcement action by the CFTC charging a violation for failing to comply with the BSA.

The SEC Order can be accessed here.

The FINRA AWC can be accessed here.

The CFTC Order can be accessed here.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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