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Finra Fines Oppenheimer $1.4M for Penny-Stock Deals

By SAABIRA CHAUDHURI
August 5, 2013, 1:47 p.m. ET
http://online.wsj.com/article/SB10001424127887323514404578650143972097834.html

The Financial Industry Regulatory Authority has fined investment bank Oppenheimer & Co. $1.4 million for selling unregistered penny-stock shares and for failing to have an adequate antimoney-laundering- compliance program to detect suspicious penny stock transactions.

Oppenheimer neither admitted nor denied the charges.

"The sales of penny stocks at issue in the settlement with FINRA occurred a number of years ago and were mostly conducted by brokers no longer associated with our firm," a company spokesperson said in an emailed response. "The firm has significantly tightened its policies relating to the sales of low priced shares and enhanced its review of client sales with respect to anti-money laundering oversight."

According to the order from Finra, Oppenheimer is required to hire an independent consultant to review its penny stock and antimoney- laundering systems.

"Broker-dealers are required by federal securities laws and Finra rules to monitor customers' accounts so that those accounts are not used for illegal activities, such as money laundering and penny-stock schemes that can cause considerable harm to investors," said Brad Bennett, head of Finra's Department of Enforcement. "If Oppenheimer had an adequate antimoney laundering and supervisory program in place, it would have made further inquiry into the penny stock sales that were the basis of this action."

The charges were first brought against the firm in a May complaint by Finra.

Finra found that from August 2008 to September 2010, Oppenheimer sold more than a billion shares of 20 low-priced, highly speculative securities, also called penny stocks, without registration or an applicable exemption.

It said the firm's customers deposited large blocks of penny stocks shortly after opening the accounts, and then liquidated the stock and transferred proceeds out of the accounts.

Finra also found the firm's systems and procedures governing penny-stock transactions were inadequate, and were unable to determine whether stocks were restricted or freely tradable.

The agency charged Oppenheimer with failing to conduct adequate supervisory reviews to determine whether the securities were registered, and found that Oppenheimer's antimoney-laundering program failed to monitor patterns of suspicious activity associated with the penny-stock trades.

The agency also noted Oppenheimer didn't conduct adequate due diligence on the account of a broker-dealer customer in the Bahamas, which Finra says was setup to sell securities for parties not subject to Oppenheimer's anti-money laundering review.

Finra said this is the second time Oppenheimer has been found to have violated its antimoney-laundering obligations.

In March, Oppenheimer agreed to pay more than $2.8 million to settle federal allegations regarding overstated returns and the value of a former unit's fund. The Securities and Exchange Commission said that Oppenheimer shared with investors misleading quarterly reports and marketing materials about a private-equity fund it managed.

And in February 2012, the New Hampshire Bureau of Securities Regulation fined Oppenheimer $155,000 in fines and expenses for the illegal sale of penny stocks and for failure to supervise its employees.

Write to Saabira Chaudhuri at [e-mail]


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original link courtesy of the penny guru

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