The Securities and Exchange Commission recently announced charges against Oppenheimer & Co. for violating federal securities laws by improperly selling penny stocks in unregistered offerings on behalf of customers. Oppenheimer admitted wrongdoing and agreed to pay $10 million to settle the SEC’s charges. In addition to the monetary remedies, Oppenheimer agreed to be censured and undertake such remedial measures as retaining an independent consultant to review its policies and procedures over a five-year period. Oppenheimer also will pay another $10 million to settle a parallel action by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
The SEC found that Oppenheimer engaged in two series of misconduct. First, Oppenheimer aided and abetted illegal activity by its customer, Gibraltar Global Securities, and ignored red flags that business was being conducted without an applicable exemption from the broker-dealer registration requirements of the federal securities laws. Gibraltar Global Securities is a brokerage firm in the Bahamas, and is not registered to do business in the U.S. The SEC found that Oppenheimer executed sales of billions of shares of penny stocks for a supposed proprietary account in Gibraltar’s name while knowing or being reckless in not knowing that Gibraltar was actually executing transactions and providing brokerage services for its underlying customers, including many in the U.S. The SEC separately charged Gibraltar in 2013 for its alleged misconduct.
The SEC’s order instituting a settled administrative proceeding also found that Oppenheimer failed to file Suspicious Activity Reports (SARs) as required under the Bank Secrecy Act to report potential misconduct by Gibraltar and its customers, and the firm failed to properly report, withhold, and remit more than $3 million in backup withholding taxes from sales proceeds in Gibraltar’s account.
Second, Oppenheimer engaged in unregistered sales of billions of shares of penny stocks on behalf of another customer. The SEC’s investigation, which is continuing, found that the sales generated approximately $12 million in profits of which Oppenheimer was paid $588,400 in commissions. The SEC found that Oppenheimer failed to respond to red flags and conduct a searching inquiry into whether the sales were exempt from registration requirements of the federal securities laws, and failed to reasonably supervise with a view toward detecting and preventing violations of the registration provisions.
“Despite red flags suggesting that Oppenheimer’s customer’s stock sales were not exempt from registration, Oppenheimer nonetheless allowed unregistered sales to occur through its account, failing in its gatekeeper role,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “These actions against Oppenheimer demonstrate that the SEC is fully committed to addressing lax AML compliance programs at broker-dealers through enforcement action. The sanctions imposed on Oppenheimer, which include admissions of wrongdoing and $20 million in monetary remedies, reflect the magnitude of Oppenheimer’s regulatory failures.”
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