The Securities and Exchange Commission filed an administrative complaint against New York-based brokerage firm Windsor Street Capital and its former anti-money laundering officer John D. Telfer.
The SEC alleged last week that the firm, formerly named Meyers Associates L.P., and Telfer failed to file Suspicious Activity Reports for $24.8 million in suspicious transactions.
Some of those transactions occurred in accounts controlled by penny stock promoters. The promoters paid about $9.5 million to settle separate SEC charges that they ran a pump-and-dump operation.
Telfer was Meyers’ AML officer from November 2013 through September 2016. In that position, he was “personally responsible” for monitoring transactions, the SEC said.
By failing to carry out his compliance duties, Telfer “aided and abetted” and caused the misconduct, according to the SEC.
Meyers Associates and Telfer should have known about the suspicious circumstances behind transactions occurring in customer accounts, the SEC said.
The SEC said shares deposited by stock promoters Raymond H. Barton and William G. Goode could not be sold legally because no registration statement was in effect and no registration exemption was available. “Rather than conduct a reasonable inquiry into the deposits,” the SEC said, “Meyers Associates allegedly accepted registration exemption claims by Barton and Goode at face value.”
Meyers Associates “systematically flouted its obligations under the securities laws to report suspicious activity,” the SEC’s Andrew Calamari said.
Other brokerage firms rejected similar deposits by Barton and Goode that Meyers Associates accepted and failed to report, the SEC said.
“Customers like Barton and Goode allegedly deposited large blocks of penny stocks, liquidated them typically amid substantial promotional activity, and then transferred the proceeds away from the firm,” the SEC said.
Meyers Associates and Telfer are entitled to a public hearing where an administrative law judge will decide what remedial action to order, if any.
The SEC filed a complaint last week in federal court against Barton and Goode along with Matthew C. Briggs, Kenneth Manzo, and Justin Sindelman. The complaint alleged that they bought shares of dormant shell companies supposedly in the dietary supplement business. Then they “falsely touted news and products stemming from those companies, and dumped the shares on the market for investors to purchase at inflated prices,” the SEC said.
Without admitting or denying the allegations, Barton, Goode, and Briggs agreed to settle the charges. They consented to court orders requiring them to pay disgorgement and penalties totaling more than $8.7 million. Manzo agreed to admit wrongdoing and pay more than $95,000 to settle the charges.
The SEC’s case against Sindelman is still pending.
Richard L. Cassin is the publisher and editor of the FCPA Blog.