Interactive Brokers to pay over $38 million penalty to settle charges with regulators

The US Securities and Exchange Commission (SEC) announced that it imposed an $11.5 million monetary penalty on Interactive Brokers LLC for repeatedly failing to file Suspicious Activity Reports (SARs) for U.S. microcap securities trades it executed on behalf of its customers. The Financial Industry Regulatory Authority (FINRA) and the Commodity Futures Trading Commission (CFTC) filed parallel actions against the firm in anti-money laundering violations and Interactive Brokers agreed to pay penalties of $15 million and $11.5 million, respectively, for a total of $38 million in penalties paid to the three agencies.

According to the order SEC filed, for a period of one year, Interactive Brokers failed to file over 150 SARs to flag potential manipulation of microcap securities in its customers’ account, some of the trading accounting for a significant portion of the daily volume in certain of the microcap issuers.

The agency also found that the registered broker-dealer 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.

Marc P. Berger, Director of the SEC’s New York Regional Office said:

SAR filings are an essential tool in assisting regulators and law enforcement to detect potential violations of the securities laws, particularly in the microcap space. Today’s multi-agency settlement reflects the seriousness we place on broker-dealers complying with their SAR reporting obligations and maintaining appropriate anti-money laundering controls.

Interactive Brokers to pay over $38 million penalty to settle charges with SEC, CFTC and FINRA

The CFTC filed charges against Interactive Brokers for failing to supervise its officers’, employees’, and agents’ handling of several commodity trading accounts and not implementing adequate procedures to detect and report suspicious transactions as required under federal anti-money laundering (AML) laws and regulations.

Interactive Brokers agreed to be censured, to cease and desist, and to pay an $11.5 million penalty on SEC’s order. The company also agreed to pay $11.5 million penalty in response to the CFTC order and disgorge $706,214. In its settlements with FINRA and the CFTC, Interactive Brokers agreed to hire an independent compliance consultant to review and report on the AML and supervisory issues raised in the order.

CFTC Director of Enforcement James McDonald stated:

James McDonald, CFTC

James McDonald
Source: LinkedIn

Our regulatory regime requires certain intermediaries to monitor and report suspicious activity. These suspicious activity reports—or SARs—serve as key tools that we, together with our regulatory partners, use to identify fraud, manipulation, and other wrongdoing in our markets—often at the earliest stages. This case marks the first time the CFTC has charged a violation of Regulation 42.2 and shows our commitment to ensuring these requirements are met.

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