Cetera Pays $1.1M to Settle FINRA Charges Over AML Oversight Failures

Core Viewpoint - Cetera will pay $1.1 million to settle FINRA charges related to inadequate anti-money laundering (AML) oversight, which failed to identify suspicious transactions that required further investigation [1]. Group 1: Settlement Details - The FINRA settlement addresses issues from March 2019 to August 2021, focusing on Cetera's supervisory systems and written supervisory procedures [2]. - The settlement involves three subsidiaries of Cetera: Cetera Advisors, Cetera Wealth Services, and Cetera Investment Services [2]. Group 2: Regulatory Compliance - FINRA rules require each registrant to develop written AML programs in compliance with the Bank Secrecy Act, and broker-dealers must file suspicious transaction reports under certain circumstances [3]. Group 3: Transaction Oversight Failures - From 2019, Cetera did not implement adequate policies to detect and report suspicious transactions involving low-priced securities, also known as microcap or penny stocks, which are volatile and trade in low volumes [4]. - During the specified period, Cetera customers sold approximately 800 million shares of penny stocks, contributing less than 0.1% to the firm's total revenue [4]. Group 4: Review Procedures - Until December 2019, Cetera only required monthly reviews without providing guidance on identifying potential red flags in low-priced securities transactions [5]. - After December 2019, Cetera Wealth Services initiated daily reviews, but these reports lacked historical data and were deemed ineffective by FINRA for detecting suspicious activity [6]. Group 5: Specific Case of Oversight - In one instance, three customers opened accounts, deposited over 100 million shares of a low-priced security, and began liquidating them, generating proceeds of about $375,000 [6]. - These customers accounted for up to 88% of the daily market volume, with one customer selling 10 million shares shortly after a promotional campaign for the issuer [7]. - Cetera's supervisory procedures were also inadequate in detecting potential Securities Act violations related to the offer or sale of unregistered securities [7].