Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Friday, June 5, 2009

Three Broker Firms Settle FINRA Charges of Inadequate AML Compliance Programs

FINRA announced that it fined three broker-dealers — J.P. Turner & Co., of Atlanta, Park Financial Group, Inc., of Maitland, FL, and Legent Clearing, LLC, of Omaha — for failing to implement reasonable anti-money laundering (AML) compliance programs, including the failure to detect, investigate and report instances of potentially suspicious transactions in low-priced stocks.  J.P. Turner was fined $525,000, Park Financial was fined $400,000 and Legent Clearing was fined $350,000. In addition, two individuals — Park Financial's former CEO and AML compliance officer Gordon Charles Cantley and J.P. Turner equity trader John McFarland — were barred permanently from the securities industry. David Farber, a Park Financial equity trader, was fined $25,000 and suspended in all capacities for 30 days. S. Cheryl Bauman, J.P. Turner's former AML compliance officer, was fined $30,000 and suspended from acting as a principal in a securities firm for 18 months, while Robert Meyer, a former J.P. Turner branch manager, was fined $5,000 and suspended as a principal for one month.

 The Bank Secrecy Act and FINRA rules require all broker-dealers to design and implement programs to detect and report suspicious transactions at, by or through the firm. The program must be tailored to the risks of the firm's business. For such transactions to be reportable, the firm does not need actual knowledge that the customer is in fact committing a crime or that the funds are the proceeds of a crime.

 In each of the three cases announced today, the firms failed to establish and/or implement reasonable procedures to detect and report suspicious trading in low-priced securities. Certain trading in low-priced securities, or "penny stocks," creates a risk that these securities can be used by unscrupulous issuers of the stock, stock promoters and others affiliated with the issuers for money laundering or to commit securities fraud or market manipulation. These firms failed to detect and investigate potentially suspicious transactions. Many of the transactions in these cases presented sufficient red flags that the firms should have had reason to suspect that the customers may have been engaged in unregistered distributions, market manipulation or securities fraud.

 In settling these matters, J.P. Turner, Park Financial, Legent Clearing, Gordon Charles Cantley, John McFarland, David Farber, S. Cheryl Bauman and Robert Meyer neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

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