FINRA found that Hold Brothers' AML policies, procedures, and internal controls were inadequate and failed to detect suspicious transactions and did not trigger the reporting of the suspicious transactions as required by the Bank Secrecy Act. Hold Brothers also failed to tailor its AML program to its business, as required. Between 2009 and 2011, the firm averaged approximately 400,000 trades per day, approximately 90 percent of which were placed through the Demostrate account. Despite this high volume of trading, Hold Brothers' AML procedures only provided for manual monitoring to detect suspicious trading activity in the accounts.
There were also numerous instances when Hold Brothers' compliance department determined that Trade Alpha or Demostrate traders had engaged in suspicious or manipulative trading. These instances of suspicious activity were not escalated to the firm's AML compliance officer and the firm never considered filing a suspicious activity report relating to the activity.
As part of the disciplinary action, FINRA and the exchanges also ordered Hold Brothers to retain an independent consultant to conduct a comprehensive review of the adequacy of the firm's policies, systems and procedures, and training related to AML, trading, day trading, compliance with SEC Rule 15c3-5, and the use of foreign traders.
In resolving these matters against Hold Brothers, FINRA and the exchanges took into consideration that the SEC's action included bars for three individual senior managers associated with Hold Brothers.
In concluding this settlement, Hold Brothers neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
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