On August 12, 2024, the Securities and Exchange Commission charged New York-based broker-dealer OTC Link LLC for failing to monitor, investigate and file numerous Suspicious Activity Reports (“SARs”) for a period of more than three years, in violation of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8 thereunder. OTC Link agreed to pay the SEC $1.19 million to settle these charges.
According to the SEC, OTC Link was required, as a registered broker-dealer, to comply with the Bank Secrecy Act (“BSA”) and report transactions that the company knew or suspected were involved in fraudulent activity or have no apparent business or lawful purpose. From March 2020 through May 2023, OTC Link allegedly failed to adopt or implement anti-money laundering policies and procedures that adequately surveilled transactions conducted through its Alternative Trading System (“ATS”) platforms for possible red flags of suspicious activity. The SEC found that three ATS platforms – OTC Link ATS, OTC Link ECN, and OTC Link NQB – were used exclusively by broker-dealers on a daily basis to execute tens of thousands of transactions, many of which involved microcap or penny stock securities that tend to be high-risk in nature. While OTC Link’s automated surveillance system, at times, averaged approximately 310 alerts per month, the SEC discovered that the two employees responsible for reviewing the alerts only devoted approximately five hours per month on this task. According to the SEC, OTC Link failed to file a single SAR for three years due to a lack of sufficient resources.
In addition to the payment of the $1.19 million monetary penalty, OTC Link agreed to a censure and a cease-and-desist order without admitting or denying the SEC’s allegations. The SEC agreed to accept OTC Link’s settlement offer after considering its remedial acts and cooperation with SEC staff. According to the Order, in response to comments received from the SEC in 2022 and 2023, OTC Link expanded the alert criteria for its automated surveillance system by “lowering sale volume thresholds for subscribers with disciplinary history and for potential illegal unregistered distributions” and has started filing SARs related to these activities. The company also added two additional AML compliance team members to assist with surveillance efforts and retained a third-party compliance consultant to review its compliance program and recommend improvements to its AML policies.