Oppenheimer to pay $20M for penny stock violations

Broker-dealer to pay $20 million over a failure to prevent suspicious penny stock trading and pump-and-dump schemes.

Oppenheimer & Co. Inc. has agreed to pay $20 million and admit guilt as part of concurrent settlements with the Securities and Exchange Commission and the Financial Crimes Enforcement Network over improper penny stock trades.

The firm, which runs a retail brokerage operation with around 1,400 financial advisers, failed to properly detect and report suspicious trades in penny stocks, which are thinly traded securities that can be vulnerable to manipulation by stock promoters, according to FinCEN. The regulator identified at least 16 customers in five states who engaged in “patterns of suspicious activity.”

“Broker–dealers face the same money laundering risks as other types of financial institutions,” said FinCEN Director Jennifer Shasky Calvery, in a release. “And by failing to comply with their regulatory responsibilities, our financial system became vulnerable to criminal abuse. This is the second time FinCEN has penalized Oppenheimer for similar violations. It is clear that their compliance culture must change.”

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In a parallel action, the SEC pointed to two instances between 2008 and 2010 in which the firm engaged in unregistered sales of penny stocks.

In one case, a financial adviser and his branch manager willfully engaged in unregistered sales of 2.5 billion shares of penny stocks on behalf of a customer, despite the fact that the shares were not exempt from registration, according to the SEC settlement. The trades generated $12 million in proceeds, of which Oppenheimer was paid $588,400 in commissions.

The settlement did not name the broker or branch manager, but said that its investigations into the matter were ongoing.

The other charge revolves around Oppenheimer’s role in possibly assisting allegedly illegal activity by a Bahamas-based brokerage firm, Gibralter Global Securities.

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The firm disclosed in quarterly filings earlier this year.
that it was setting aside $12 million to deal with the possible fallout from regulatory investigations, mostly dealing with penny stock issues.

The head of the firm’s retail brokerage, Robert Okin, resigned in December, reportedly to pursue other interests. His Finra BrokerCheck record discloses he is facing an SEC investigation.

A spokesman for Oppenheimer, Stefan Prelog said in an email that the firm was “pleased to put these matters, which involve activity that occurred years ago, behind it.”

The firm has also agreed to hire an independent consultant as part of the settlement.