September 16, 2019

Registered broker-dealer settles AML and other charges with the SEC

On September 16, 2019, Vandham Securities Corporation, a registered broker-dealer whose customers are primarily other broker-dealers engaged in the liquidation of large volumes of shares in thinly traded, low priced over-the-counter stocks, settled allegations by the US Securities and Exchange Commission regarding three types of securities laws violations.  The first two implicated Rule 203(b)(1) of Regulation SHO promulgated under the Exchange Act and Rule 15c2-11, and involved Vandham’s alleged failure to locate shares of stocks traded on its own behalf through short sales, and the company’s failure to obtain and review issuer information prior to publishing quotations offering to sale shares in a quotation medium.  

The third violation cited by the SEC focused on Vandham’s failure to implement its anti-money laundering policies and procedures to address the risks of the business model it used to facilitate high volume liquidations of low priced, thinly traded over-the-counter stocks.  According to the SEC, this led to inadequate investigation by Vandham of its customers’ transactions, and to failure to file timely Suspicious Activity Reports for transactions that it had reason to suspect involved fraudulent activity, in violation of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder.  In its discussion of Vandham’s AML violations, the SEC detailed several transactions which, despite the company’s policies specifying certain red flags indicative of potential money laundering, were not the subject of a SAR as required by the Bank Secrecy Act and its implementing regulations.

The SEC order requires Vandham to cease and desist from further violations and to pay a civil monetary penalty of $200,000.