The Financial Industry Regulatory Authority (FINRA) has fined Oppenheimer and Co US$1.42 million for the sale of unregistered penny stock shares and for failing to have an adequate anti-money laundering (AML) compliance program to detect suspicious penny stock transactions.
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According to the order from FINRA, Oppenheimer is also required to retain an independent consultant to conduct a comprehensive review of the adequacy of Oppenheimer’s penny stock and AML policies, systems and procedures. Oppenheimer agreed to the sanctions to resolve charges first brought against the firm in a FINRA complaint in May 2013.
Brad Bennett, executive vice president and head of the department of enforcement at FINRA, said: "Broker-dealers are required by federal securities laws and FINRA rules to monitor customers’ accounts so that those accounts are not used for illegal activities, such as money laundering and penny stock schemes that can cause considerable harm to investors.
"If Oppenheimer had an adequate AML and supervisory program in place, it would have made further inquiry into the penny stock sales that were the basis of this action."
FINRA found that from 19 August 2008, to 20 September 2010, Oppenheimer, through branch offices located across the country, sold more than a billion shares of twenty low-priced, highly speculative securities (penny stocks) without registration or an applicable exemption.
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By GlobalDataFINRA also found that the firm’s systems and procedures governing penny stock transactions were inadequate, and were unable to determine whether stocks were restricted or freely tradable. Oppenheimer also failed to conduct adequate supervisory reviews to determine whether the securities were registered.
FINRA also found that Oppenheimer’s AML program did not focus on securities transactions and therefore failed to monitor patterns of suspicious activity associated with the penny stock trades.
In addition, Oppenheimer failed to conduct adequate due diligence on a correspondent account for a customer that was a broker-dealer in the Bahamas, and therefore a Foreign Financial Institution under the Bank Secrecy Act; the firm’s failure contributed to Oppenheimer’s failure to understand the nature of the customer’s business and the anticipated use of the account, which was to sell securities on behalf of parties not subject to Oppenheimer’s AML review.
FINRA said this is the second time Oppenheimer has been found to have violated its antimoney-laundering obligations.
In March, Oppenheimer agreed to pay more than US$2.8 million to settle federal allegations regarding overstated returns and the value of a former unit’s fund. The Securities and Exchange Commission said that Oppenheimer shared with investors misleading quarterly reports and marketing materials about a private-equity fund it managed.
And in February 2012, the New Hampshire Bureau of Securities Regulation fined Oppenheimer US$155,000 in fines and expenses for the illegal sale of penny stocks and for failure to supervise its employees.
