Update: comment from Penson added below
Dallas-based Penson Financial Services just got in trouble for not adequately reviewing the trades it clears.
FINRA announced yesterday that it has fined Penson $450,000 for “failing to establish and implement an adequate anti-money laundering program to detect and trigger reporting of suspicious transactions.”
But it’s not related to naked shorting. In October, we wrote about Penson in relation to journalist Matt Taibbi’s demonstration of using their software to illegally short massive amounts of stock. (Penson told us the video was a hoax, and wrote as much to the SEC)
Herb Perone, a FINRA spokesman, told us the “findings relate to lack of adequate AML procedures” and not more.
Amanda McCutcheon, Manager, Corporate Communications, Penson Worldwide, Inc., said, “This involves conduct that took place as long as six years ago. As our settlement document recognises, Penson has made significant improvements to its AML systems. We take this issue very seriously, we fully reserved for this fine, and we are glad to have put this matter behind us.”
Details from the FINRA release:
FINRA found that from Oct. 1, 2003, through May 31, 2008, Penson failed to adequately establish and implement its AML compliance program. FINRA found that one or two individuals were responsible for reviewing certain AML exception reports for suspicious activity, reports that were sometimes thousands of pages in length. Because the firm failed to allocate sufficient resources to its AML compliance program, these exception reports were not consistently reviewed. FINRA also found that Penson failed to regularly review penny stock deposits and liquidations, which can present a higher risk for fraud and money laundering. The firm also permitted customers to disburse funds out of certain accounts with check writing features without adequate AML review until December 2007, even though firm employees had identified this as a compliance concern internally as early as January 2004 and the firm had identified the concern through two subsequent internal audits.
FINRA found that even after implementing enhancements to its AML program in December 2007 — including a sophisticated automated system to help identify suspicious trading activity — Penson still failed to conduct timely investigations of activity identified by the automated system as potentially suspicious because of continued inadequate staffing. Specifically, FINRA found that the firm failed to promptly commence a review of approximately 129 instances in which suspicious activity had been flagged for review by the firm’s automated system.
FINRA also found that Penson’s AML training program and written AML procedures were deficient, and that the firm failed to adequately assess the money-laundering risks presented by certain of the firm’s correspondent clearing accounts for foreign financial institutions. Additionally, FINRA found that Penson failed to comply with FINRA reporting requirements for clearing firms, failed to keep accurate books and records regarding the ages and actual amounts of unsecured deficits in the accounts of its correspondent firms, and failed to provide the ages and/or the actual amounts of certain unsecured deficits to its correspondent firms.