The SEC has settled charges with three broker-dealers: WeBull Financial, Lightspeed Financial Services Group, and Paulson Investment Company, after each firm was alleged to have failed to fully flesh out the narrative sections of several suspicious activity reports (SARs) from 2018 to 2022.

All three settled the charges without admitting or denying the allegations and will pay a civil penalties:

• WeBull: $125,000;
• Lightspeed: $75,000;
• Paulson: $75,000.

WeBull and Paulson will also hire an independent consultant to review their AML policies pursuant to the SEC’s order. Each firm received credit for their cooperation.

Broker-dealers

The Bank Secrecy Act (BSA) requires that SEC-registered broker-dealers complete SARs with the Treasury Department’s Financial Crimes Enforcement Network (FinCen) for transactions over $5,000 that arouse suspicion of illegal activity or money laundering.  

These reports require “a clear, complete, and concise description of the [suspicious] activity, including what was unusual or irregular that caused suspicion” and inclusion of “any other information necessary to explain the nature and circumstances of the suspicious activity.”

According to FinCen guidance, a proper SAR requires addressing the “who, what, why and when” of a suspicious transaction. These requirements were mirrored in the firms’ internal policies.

However, the SEC order stated that each firm neglected to include critical details in their narrative reports, such as names of customers and names of securities at issue. The SARs also commonly failed to list the dates, times, and amounts of suspicious trades, among other deficiencies.

Additionally, several of the firms’ SARs failed to fully describe why a given transaction was suspicious.

SARs are critical tools to prevent money laundering, and failure to file them can be met with stiff penalties. Indeed, a central issue in the recent multi-agency penalties against TD Bank was its failure to file SARs for thousands of suspicious transactions totaling $1.5 billion.

SAR reports have been increasing steadily in number each year. This trend can be traced to a rise in fraudulent activity, improvements in detection technology, and increasingly vigilant compliance procedures.

“Suspicious activity reports play a vital role in keeping our markets safe, and the failure of broker-dealers to include necessary information to explain suspicious transactions deprives law enforcement and regulatory agencies of valuable and timely intelligence, undermining the very purpose of the SARs,” said Jason Burt, Director of the SEC’s Denver Regional Office.

Rule violations

For failing to file complete SARs, the firms were accused of violating Section 17(a) of the Exchange Act and Rule 17a-8 thereunder, which covers reporting, recordkeeping, and record retention requirements for SEC-registered brokers.