Interactive Brokers LLC (NASDAQ:IBKR) has been hit with a combined $38 million penalty in settlements with three US regulators over a number of anti-Money Laundering breaches, including failing to file suspicious activity reports (SARs).
The discount broker paid an $11.5 million penalty to settle charges with the Securities and Exchange Commission over the deficiencies in its internal controls that failed to spot suspicious trades involving microcap stocks, known as penny stocks. In parallel actions, the Financial Industry Regulatory Authority (FINRA) and the Commodity Futures Trading Commission (CFTC) hit Interactive Brokers with penalties of $15 million and $11.5 million, respectively.
The company also agreed, without admitting or denying wrongdoings, to cease and desist from future violations and hire outside consultants to conduct various assessments, test its AML program, and develop a new case management system.
According to the regulators’ announcements, their respective orders highlight weaknesses in IB's supervision systems covering the staff’s handling of trading accounts, as well as the failure to file SARs and enforce anti-money laundering controls that have been in place for years.
According to the SEC’s order that levied the fine, Interactive Brokers failed to file more than 150 suspicious activity reports, flagging potentially problematic transactions.
“The order finds that Interactive Brokers failed to recognize red flags concerning these transactions, failed to properly investigate suspicious activity as required by its written supervisory procedures, and failed to file SARs in a timely fashion even when suspicious transactions were flagged by compliance personnel,” it said.
Part of IB Fine Relates to Haena Park Case
Interactive Brokers also lacked a companywide risk assessment process for money laundering and had deficiencies in due diligence with one its customers, the CFTC noted in a statement.
The CFTC’s penalty includes $706,214 that IB paid to disgorge its earnings from ties with Haena Park and her companies, who engaged in fraudulent transactions. Haena was sentenced to three years in prison in 2017 and ordered to pay $23 million after pleading guilty to defrauding investors.
Despite rad flags tied to her trading, mostly in highly leveraged futures and FX transactions, Interactive Brokers ignored numerous instances when the customer trading activity should have triggered the firm to file SARs. At the time, Park touted herself as an experienced trader, who had generated annual returns of as high as 50 percent. Though, in fact, her trading was consistently unsuccessful, and she lost $19.5 million of the $20 million she traded.
“As Park’s FCM, Interactive Brokers failed to properly monitor her account activity. The order also requires Interactive Brokers to comply with certain undertakings, including the hiring of a third party compliance consultant to review and report on the AML and supervisory issues raised in the order,” the CFTC said.
