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Oppenheimer fined $20 million for AML failures in penny stock trades

The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) assessed a $20 million civil penalty against Oppenheimer & Co., Inc. for “willfully violating” the Bank Secrecy Act.

Oppenheimer is a securities broker–dealer based in New York. It admitted that it failed to establish and implement an adequate anti–money laundering program, failed to conduct adequate due diligence on a foreign correspondent account, and failed to comply with requirements under Section 311 of the USA PATRIOT Act (part of the Bank Secrecy Act).

FinCEN said Tuesday that it identified 16 Oppenheimer customers who “engaged in patterns of suspicious trading” through branch offices in five states. All of the suspicious activity, the agency said, involved penny stocks.

In a parallel enforcement action, the SEC Tuesday charged Oppenheimer with aiding and abetting illegal activity by a customer and ignoring red flags of illegal trading in unregistered securities.

Half of FinCEN’s $20 million penalty against Oppenheimer will go to the SEC for the securities law offenses.

In its administrative order, the SEC said:

The customer was Gibraltar Global Securities, a brokerage firm in the Bahamas that is not registered to do business in the U.S.  Oppenheimer executed sales of billions of shares of penny stocks for a supposed proprietary account in Gibraltar’s name while knowing or being reckless in not knowing that Gibraltar was actually executing transactions and providing brokerage services for its underlying customers, including many in the U.S. 

FinCEN said from 2008 through mid-2014, Oppenheimer did business without having “adequate policies, procedures, and internal controls reasonably designed to detect and report suspicious activity.”

In 2013, the private securities regulator FINRA (the Financial Industry Regulatory Authority) fined Oppenheimer $1.4 million for violations of securities law and anti–money laundering failures.

In 2005, FinCEN and the New York Stock Exchange levied a civil penalty of $2.8 million against Oppenheimer for similar violations.

“This is the second time FinCEN has penalized Oppenheimer for similar violations,” FinCEN director Jennifer Shasky Calvery said. “It is clear that their compliance culture must change.”

Under Section 311 of the USA PATRIOT Act, the director of FinCEN can designate a foreign financial institution as a “primary money laundering concern.” U.S. banks generally can’t open or maintain  correspondent accounts for the designated foreign firms.

Oppenheimer itself designated a foreign customer as “high risk” but then failed to conduct proper due diligence, FinCEN said.

“Oppenheimer inadequately monitored the foreign financial institution’s transactions and consequently didn’t detect or investigate numerous suspicious transactions conducted through the account, including prohibited third–party activity and illegal penny stock trading,”FinCEN said.

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A copy of FinCEN’s January 26, 2015 enforcement action In the Matter of: Oppenheimer & Co., Inc. is here (pdf). A copy of the SEC’s administrative order is here (pdf).


Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.

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