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SEC, FINRA Enforcement: Edward Jones Fined for AML Failures

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Among recent enforcement actions were charges by the Securities and Exchange Commission against a stock-based lender for selling billions of shares of penny stocks. Financial Industry Regulatory Authority actions included a censure and fine of Prudential over failures to deliver prospectuses; of Global Financial Services over failures to investigate suspicious activities; and of Edward Jones over anti-money laundering failures.

Edward Jones Censured, Fined on AML Failures

Edward D. Jones & Co., L.P. was censured by FINRA and fined $100,000 on failure to develop and implement adequate AML procedures for the review of deposits and liquidations of third-party stock certificates in customer accounts.

According to the agency, the firm failed to obtain any information regarding the relationship between the stockholder and the account holder, and failed to have procedures to track or investigate situations where third-party stock certificates were deposited into a firm account.

The firm did not document the reason for a stock’s change of ownership from the original owner to an account holder at the firm, which meant that some customers deposited and liquidated third-party stock certificates owned by individuals who were either previously denied their own account with the firm or who were otherwise ineligible to establish an account at the firm.

Without admitting or denying the findings, the firm consented to the sanctions.

International Capital Group Fined $4.3M Over Penny Stock Sales, Loans

The SEC has charged Chicago-based International Capital Group (ICG), its two co-founders and its former chief operating officer with selling more than 9 billion shares of penny stocks through purported stock-based loans, block trades and other transactions without registering with the SEC as a broker-dealer.

According to the agency, ICG presented itself as a stock-based lender and systematically sold stock obtained as collateral for at least 149 stock-based loans. However, it had failed to register with the SEC as a broker-dealer.

On average, ICG began selling the collateral shares it received through each loan three days before closing and funding the loan, and completed the sale of all remaining shares within two weeks of receiving the stock.

In many cases, ICG didn’t provide the money to the customer until enough stock had been sold to fund the loan. Several times ICG also violated the securities registration provisions by distributing unregistered stock that it acquired from issuers or their affiliates. Its cofounders Brian Nord and Larry Russell Jr., and its former COO Todd Bergeron directed, authorized, or participated in these transactions.

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Without admitting or denying the agency’s findings, the company and its executives have agreed to collectively pay more than $4.3 million to settle the charges. ICG, Nord, and Russell must pay $1,670,054 in disgorgement and prejudgment interest as well as penalties of $1.5 million, $300,000 and $250,000, respectively. They are barred from the securities industry and penny stock offerings for five years. Bergeron must pay $417,514 in disgorgement and prejudgment interest and a penalty of $150,000, and he is barred from the securities industry and penny stock offerings for three years.

Prudential Fined, Censured on Prospectus Failures

FINRA has censured Prudential Investment Management Services LLC and fined the firm $300,000 after it found that that for nearly 4½ years the firm failed to deliver mutual fund prospectuses in a timely manner to some retirement account customers within three business days of purchase.

The firm discovered the problem during an internal review and self-reported to FINRA, then began to deliver prospectuses to customers. However, a significant number of customers who bought mutual funds had not been provided with required disclosures by the settlement dates of their transactions.

In addition, the firm had failed to provide prospectuses because of a programming defect in the firm’s automated prospectus delivery system, as well as manual input errors made by employees in the firm’s affiliated retirement business. It had neither a supervisory system nor written supervisory procedures in place to track and ensure the timely delivery of mutual fund prospectuses to customers. It had, however, identified the lack of WSPs pertaining to prospectus delivery as a regulatory gap.

The firm neither admitted nor denied the findings, but consented to the sanctions.

FINRA Tackles Suspicious Activity Failures at Global Financial Services

Global Financial Services Inc. was censured and fined $100,000 by FINRA after the agency found the firm had failed to put in place policies and procedures to find and report suspicious activities.

FINRA said that, in spite of numerous “red flags” in several accounts, the firm neither investigated nor filed Suspicious Activity Reports (SARs). Its written anti-money laundering (AML) procedures did not adequately address red flags, the responsibility for filing SARs, or monitoring third-party money movements for suspicious activity.

In addition, the firm lacked policies, procedures and controls to comply with the Bank Secrecy Act; did not have written AML procedures for Section 311 requirements for the USA PATRIOT Act; and failed to provide notices to its correspondent accounts for foreign financial institutions.

The firm neither admitted nor denied the findings, but consented to the sanctions.