The Securities and Exchange Commission announced Monday that Interactive Brokers LLC will pay an $11.5 million penalty to settle charges it repeatedly failed to file Suspicious Activity Reports (SARs) for U.S. microcap securities trades it executed on behalf of its customers.
In parallel actions, the Financial Industry Regulatory Authority (FINRA) and the Commodity Futures Trading Commission (CFTC) today announced settlements with Interactive Brokers related to anti-money laundering failures in which the registered broker-dealer agreed to pay penalties of $15 million and $11.5 million, respectively, for a total of $38 million in penalties paid to the three agencies.
Broker-dealers are required to file SARs for transactions suspected to involve fraud or a lack of an apparent lawful business purpose. According to the SEC’s order, over a one-year period, Interactive Brokers failed to file more than 150 SARs to flag potential manipulation of microcap securities in its customers’ account, some of the trading accounting for a significant portion of the daily volume in certain of the microcap issuers.
The order finds that Interactive Brokers failed to recognize red flags concerning these transactions, failed to properly investigate suspicious activity as required by its written supervisory procedures, and failed to file SARs in a timely fashion even when suspicious transactions were flagged by compliance personnel.
“SAR filings are an essential tool in assisting regulators and law enforcement to detect potential violations of the securities laws, particularly in the microcap space,” said Marc P. Berger, director of the SEC’s New York Regional Office. “Today’s multi-agency settlement reflects the seriousness we place on broker-dealers complying with their SAR reporting obligations and maintaining appropriate anti-money laundering controls.”
The SEC’s order finds that Interactive Brokers violated the financial recordkeeping and reporting provisions of the federal securities laws and a related SEC rule. Without admitting or denying the SEC’s findings, Interactive Brokers agreed to be censured, to cease and desist, and to pay an $11.5 million penalty.
In its settlements with FINRA and the CFTC, Interactive Brokers agreed to retain an independent compliance consultant and to disgorge certain profits in addition to the penalties assessed by those agencies.
The SEC’s investigation was conducted by Victor Suthammanont, Ladan F. Stewart, and Sheldon L. Pollock of the New York Regional Office, and was supervised by Lara Shalov Mehraban.
The SEC’s examination that led to the investigation was conducted by Steven Vitulano, Hermann Vargas, and Michael Fioribello with assistance from Ilan Felix of the New York Regional Office and Stephen Bilezikjian and Christopher Wacker of the Chicago Regional Office. The SEC appreciates the assistance of FINRA and the CFTC.