Securities Lawyers Blog
FINRA fines Brown Brothers Harriman & Co. (BBH) $8 Million for substantial anti-money laundering compliance failures and suspended the firm’s global anti-money laundering compliance officer, Harold Crawford, for 30 days. The New York-based investment firm did not have an adequate program in place to look for and detect suspicious penny stock transactions, according the Financial Industrial Regulatory Authority (FINRA). The firm also failed to investigate suspicious activity involving penny stocks after becoming aware of the problem. The transaction in question generated at least $850 million in proceeds for Brown Brothers customers from January 1, 2009 to June 30, 2013.
Low-priced securities, such as penny stocks pose heightened risks because they may be manipulated by fraudsters. BBH executed transactions and delivered securities involving at least six billion shares of penny stocks, according to FINRA. BBH executed these transactions despite the fact that it was unable to obtain essential information to verify that the stocks were free trading. According to FINRA, in many instances, BBH lacked such basic information, such as the identity of the stock’s true owner. The absence of these details should trigger a review of the transactions by a firm’s anti-money laundering team.
Brad Bennett, FINRA Executive Vice President, Enforcement, said: “The sanction in this case reflects the gravity of Brown Brothers Harriman’s compliance failure. The firm opened its doors to undisclosed sellers of penny stocks from secrecy havens without regard of who was behind those transactions, or whether the stock was properly registered or exempt from registration. This case is a reminder to firms of what can happen if they choose to engage in the penny stock liquidation business when they lack the ability to manage the risks involved.”
FINRA also found that BBH failed to ensure that its supervisory reviews were adequate to determine whether the securities were part of an illegal unregistered distribution. FINRA Regulatory Notice 09-09, discusses “red flags” that should alert firms to closely scrutinize transactions to determine whether the stocks sold are properly registered or if they are exempt from registration, or when they are being offered illegally.
FINRA’s investigation was conducted by the Member Regulation, Office of Fraud Detection and Market Intelligence, and Enforcement departments.
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By: Laura Perdomo Diaz