The Securities and Exchange Commission (SEC) on Wednesday, September 1, charged Pinnacle Capital Markets LLC, a Raleigh, North Carolina-based broker-dealer with more than 99% of its customers residing outside the United States, with failing to comply with an anti-money laundering (AML) rule that requires BDs to identify and verify the identities of its customers and document its procedures for doing so.
In a parallel action announced the same day, the Financial Crimes Enforcement Network (FinCEN) assessed a penalty against Pinnacle for violating the Bank Secrecy Act (BSA).The SEC also charged Pinnacle’s managing director, Michael Paciorek, with causing Pinnacle’s violations.
According to the SEC, Pinnacle’s business primarily involves order processing with direct market access (DMA) software for foreign institutions comprised mostly of banks and brokerage firms and foreign individuals.
The SEC found that Pinnacle established, documented, and maintained a customer identification program (CIP) that specified it would identify and verify the identities of all of its customers. However, during a six-year period, Pinnacle failed to follow the identification and verification procedures set forth in its CIP.
Pinnacle and Paciorek agreed to settle the SEC’s enforcement action without admitting or denying the allegations, and Pinnacle agreed to pay $25,000 in financial penalties. The SEC says that as part of an action taken by the Financial Industry Regulatory Authority (FINRA) in February 2010, “Pinnacle also has agreed to certain undertakings, including extensive AML training for its employees, as well as the hiring of an independent consultant to review its AML compliance program.”
Robert Khuzami, Director of the SEC’s Division of Enforcement, said in a statement that “left unchecked, Pinnacle’s business model yields significant money laundering risks. If a broker-dealer provides customers with direct access to the U.S. securities markets, it must comply with the applicable customer identification rules.”