The Financial Industry Regulatory Authority (FINRA) announced it has fined two of its member firms for more than $1 million for anti-money laundering and supervisory violations related to low-priced securities transactions.
The agency said it had fined Pictet Overseas Inc $610,000 for the low-priced securities transactions violations, the majority of which it said occurred through an omnibus account held by Pictet’s affiliate.
Additionally, the agency said it had fined Blue Ocean ATS $550,000 for similar violations. FINRA said Blue Ocean handled 95 percent of all overnight trading volumes since its inception, including a substantial volume of low-priced securities. FINRA ordered Blue Ocean to certify the deficiencies had been remediated with its AML compliance program.
“The thin trading volumes, price volatility and limited public information of low-priced securities make them attractive targets for manipulative schemes and fraudulent activity,” the agency said. “Effective AML programs are essential for firms that handle low-priced securities transactions to help detect suspicious patterns and prevent illegal activity.”
According to FINRA, both firms had failed to develop and implement AML compliance programs designed to detect and cause the reporting of suspicious transactions in low-priced securities.
“Firms that engage in high-risk business activity must implement AML programs that are appropriately designed for their specific risk profile,” Bill St. Louis, executive vice president and head of enforcement at FINRA, said. “Blue Ocean’s and Pictet’s monitoring systems were inadequate given their customers’ low-priced securities trading. These firms failed to implement the robust surveillance necessary to detect suspicious activity in an area where such risks are well-established.”
FINRA said Pictet executed approximately $300 million of low-priced securities transactions involving more than 150 million shares from February 2022 to March 2023. More than 70 percent of those transactions occurred through an omnibus account held by the firm’s foreign financial institution. In June 2021, Pictet was warned by another regulator about its AML program deficiencies, however, Pictet failed to take timely corrective action until February 2025. The company also failed to provide its AML program with adequate resources until February 2023. As a result, the company did not detect or investigate red flags of suspicious activity, including instances where customers’ trading represented significant portions of daily market value. Additionally, the company inaccurately reported transactions to the Trade Reporting and Compliance Engine, issued deficient trade confirmations and did not reasonably supervise the firm’s reporting and disclosure obligations, FINRA said.
FINRA said Blue Ocean’s overnight trading business saw rapid growth, but the firm failed to develop and implement an AML compliance program. The company’s monitoring consisted primarily of manual reviews by a single employee. The company conducted, in practice, no surveillance for spoofing, layering or other manipulative order entry patterns, and as a result failed to detect and investigate red flags of suspicious order schemes.
Both companies settled the matter without admitting or denying the charges.