Aegis Capital Corp. was fined $1.3 million Wednesday for failing to flag suspicious trades as well as for having poor anti-money laundering programs to detect so-called red flags in its sale of penny stocks.
Robert Eide, the owner and CEO of Aegis Capital, which is based in New York and has about 400 brokers under its roof, "was found to have caused" the firm's infractions, according to a news release from the Securities and Exchange Commission. He was fined $40,000 by the SEC in a separate action.
"The referenced activity occurred more than four years ago, related to only seven delivery versus payment accounts, and resulted in no harm to any Aegis clients," said the firm's attorney, Michael Ference. "Aegis has long since exited this business line, and the brokers involved are no longer with the firm. Aegis is pleased to have satisfactorily resolved this legacy matter."
The SEC penalized Aegis $750,000 after it admitted that it failed to file "suspicious activity reports" on numerous suspicious transactions, the agency said.
"The SEC's order found that Aegis failed to file [the reports] on suspicious transactions that raised red flags indicating the transactions were potentially related to the market manipulation of low-priced securities," according to the SEC.
Meanwhile, the Financial Industry Regulatory Authority Inc. fined Aegis Capital $550,000 for "failing to have adequate supervisory and anti-money laundering programs tailored to detect 'red flags' or suspicious activity connected to its sale of low-priced securities," according to a press release from Finra.
Low-priced securities can include penny stocks.
From at least late 2012 to early 2014, Aegis "failed to file [suspicious activity reports] on low-priced securities transactions and did not create written analyses or compile other records indicating that they considered filing" the reports, according to the SEC.
"Aegis' employees — including those employees responsible for reviewing trades — never received any training from Aegis that included examples of the red flags associated with low-priced securities transactions that were outlined in the firm's written supervisory procedures," the SEC said.
"During its investigation, Finra found that Aegis failed to adequately monitor or investigate the trading in seven customer accounts that liquidated billions of shares of low-priced securities, generating millions of dollars in proceeds for its customers," according to Finra. "Several of these customers were foreign financial institutions that effected transactions on behalf of their underlying customers, all of whom were unknown to Aegis. The firm did not identify these trades as suspicious even after its clearing firm alerted Aegis to AML red flags and specific suspicious low-priced securities transactions."
One former Aegis anti-money laundering officer was fined $20,000 by the SEC while another AML compliance officer will have a public hearing before an administrative law judge, according to the SEC.