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.
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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.