Before You Invest Your Money

The Financial Industry Regulatory Authority (FINRA) has fined two financial firms for insufficiencies in their anti-money laundering (AML) programs. Penson Financial Services of Dallas, Texas and Pinnacle Capital Markets of Raleigh, North Carolina were fined $450,000 and $300,000, respectively. These two fines follow a similar action in October 2009 involving deficiencies in the AML program at Scottrade.

Penson Financial Services was fined for failing to operate a functional AML compliance program. The specific failure involved insufficient personal resources allotted to review AML exception reports. In addition to this, FINRA found that penny stock deposits and liquidations were insufficiently reviewed, thus allowing the possibility for fraud and money laundering. Also, written AML procedures were inadequate, and the firm failed to maintain accurate records regarding unsecured deficits in the accounts of its correspondent firms, among other things. Despite enhancements to its AML program in 2007, deficiencies remained endemic to the Penson AML program.

Pinnacle Capital Markets, whose principal business relates to providing online access of U.S. securities markets to foreign customers, including many foreign financial institutions, was fined for deficiencies found regarding detection and reporting of suspicious activity as well as failure to guarantee the identity of account holders. The firm used a manual system of daily reviewing its trade blotter and in doing so failed to detect suspicious trading activity. One such failure involved a pump and dump scheme targeted in a Securities and Exchange Commission (SEC) enforcement action. In a specific failure based on their precise business model, Pinnacle failed to verify the identity of sub-account holders whose accounts were created under the main accounts of foreign financial institutions.

In typical fashion, the firms neither affirmed nor denied the charges against them. To read the official FINRA press release, click here.