Every securities broker is required, by law, to file a report of any suspicious transaction relevant to a possible violation of law or regulation.
A transaction requires reporting if it involves or aggregates funds or other assets of at least $5,000, and the broker-dealer knows, suspects, or has reason to suspect that the transaction (or a pattern of transactions of which the transaction is a part):
- (i) Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation;
- (ii) Is designed, whether through structuring or other means, to evade any requirements of this chapter or of any other regulations promulgated under the Bank Secrecy Act;
- (iii) Has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the broker-dealer knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction; or
- (iv) Involves use of the broker-dealer to facilitate criminal activity.
The relevant regulation is 31 CFR § 1023.320 – Reports by brokers or dealers in securities of suspicious transactions.
According to the SEC’s order, over a one-year period, Interactive Brokers failed to file more than 150 SARs to flag potential manipulation of microcap securities in its customers’ account, some of the trading accounting for a significant portion of the daily volume in certain of the microcap issuers. The order finds that Interactive Brokers failed to recognize red flags concerning these transactions, failed to properly investigate suspicious activity as required by its written supervisory procedures, and failed to file SARs in a timely fashion even when suspicious transactions were flagged by compliance personnel.
The SEC Press Release is online at SEC Charges Interactive Brokers With Repeatedly Failing to File Suspicious Activity Reports – Firm Will Pay a Total of $38 Million in Penalties to Settle With Regulators
Mark J. Astarita, Esq and the attorneys at Sallah Astarita & Cox, LLC represent stock market participants nationwide in SEC, FINRA and State investigations, examinations and enforcement proceedings, including issues related to SARs filings and reporting. Mark can be reached at 212-509-6544 or by email at firstname.lastname@example.org