The Securities and Exchange Commission announced that it recently reached a $350,000 settlement with registered broker-dealer GTS Securities LLC to resolve allegations that the company failed to file Suspicious Activity Reports (“SARs”) in connection with its over-the-counter (“OTC”) market making business.
According to the SEC, GTS launched its Wholesale Market Making (“WMM”) business unit in May 2019 and began serving as a market maker in OTC securities at that time. GTS quickly became one of the largest broker-dealers in the OTC Market in terms of notional value of shares by early 2020. While the OTC market and microcap and penny stocks, in particular, are especially susceptible to manipulation, fraud and other schemes, the SEC found that, from May 2019 through July 2020, GTS failed to file any SARs. The SEC determined that this failure was caused by the company’s anti-money laundering (“AML”) surveillance program, which was incapable of detecting, investigating or reporting suspicious activity at the time. According to the SEC’s order, during the relevant timeframe, GTS’s AML surveillance consisted primarily of a review of AML exceptions reports and other trade reviews conducted by a WMM supervisor – a review that did not involve the AML Chief Compliance Officer who was responsible for SAR filings for the company. According to the SEC, no SARs were filed until August 2020, after GTS enhanced its SAR-reporting procedures in June 2020.
According to the order, the SEC found that GTS willfully violated Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8 thereunder. To resolve the charges, GTS consented to the entry of the order without admitting or denying the SEC’s findings and was ordered to pay a $350,000 civil money penalty after the SEC considered the remedial actions undertaken by the company since June 2020. The order indicated that GTS’s program enhancements included the implementation of broader trade review criteria that addressed risks specifically associated with OTC trading; the addition of new personnel hired to monitor AML compliance and trade in the WMM unit; and the addition of automated surveillance tools.