The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Oppenheimer and Co., Inc. $1,425,000 for the sale of unregistered penny stock shares and for failing to have an adequate anti-money laundering (AML) compliance program to detect and report suspicious penny stock transactions.
Oppenheimer is also required to retain an independent consultant to conduct a comprehensive review of the adequacy of Oppenheimer's penny stock and AML policies, systems and procedures. Oppenheimer agreed to the sanctions to resolve charges first brought against the firm in a FINRA complaint in May 2013.
Brad Bennett, FINRA Executive Vice President and Head of the Department of Enforcement, said, "Broker-dealers are required by federal securities laws and FINRA rules to monitor customers' accounts so that those accounts are not used for illegal activities, such as money laundering and penny stock schemes that can cause considerable harm to investors. If Oppenheimer had an adequate AML and supervisory program in place, it would have made further inquiry into the penny stock sales that were the basis of this action."
FINRA found that from Aug. 19, 2008, to Sept. 20, 2010, Oppenheimer, through branch offices located across the country, sold more than a billion shares of twenty low-priced, highly speculative securities (penny stocks) without registration or an applicable exemption. The customers deposited large blocks of penny stocks shortly after opening the accounts, and then liquidated the stock and transferred proceeds out of the accounts. Each of the sales presented additional "red flags" that should have prompted further review to determine whether the securities were registered. FINRA also found that the firm's systems and procedures governing penny stock transactions were inadequate, and were unable to determine whether stocks were restricted or freely tradable. Oppenheimer also failed to conduct adequate supervisory reviews to determine whether the securities were registered.
FINRA also found that Oppenheimer's AML program did not focus on securities transactions and therefore failed to monitor patterns of suspicious activity associated with the penny stock trades. In addition, Oppenheimer failed to conduct adequate due diligence on a correspondent account for a customer that was a broker-dealer in the Bahamas, and therefore a Foreign Financial Institution under the Bank Secrecy Act; the firm's failure contributed to Oppenheimer's failure to understand the nature of the customer's business and the anticipated use of the account, which was to sell securities on behalf of parties not subject to Oppenheimer's AML review. This is the second time Oppenheimer has been found to have violated its AML obligations.
In concluding this settlement, the firm neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
FINRA's investigation was conducted by Justin Chretien, Gary Carleton, Daniel Cantu, and Perry Hubbard under the supervision of Paul Schindler and James Day.