Cetera (Advisors, Investment Services, Wealth Services)
The findings stated that the firms required representatives to complete a questionnaire that asked about registration status for deposits of lowpriced securities in physical certificate form. Before April 2021, however, the firms did not require representatives to complete questionnaires for electronic deposits of low-priced securities, unless trading activity was flagged, notwithstanding that most of the low-priced securities the firms received were deposited electronically. As a result, the firms allowed customers to deposit and sell millions of shares of low-priced securities, and wire out the proceeds, without detecting or reasonably investigating red flags.
The findings also stated that the firm’s anti-money laundering (AML) compliance program was not reasonably designed to detect and cause the reporting of suspicious transactions. The firms’ written policies and procedures required monthly reviews of lowpriced securities deposits and transactions, but not for suspicious activity. Nor did the firms’ policies and procedures provide any guidance regarding how to identify suspicious transactions in lowpriced securities. The firms’ policies and procedures did not list, nor have any mechanism for monitoring, red flags of suspicious activity in low-priced securities.
The findings also included that the Cetera Advisors failed to reasonably supervise the creation and dissemination of consolidated reports and failed to preserve such reports, in violation of Section 17(a) of the Exchange Act and Exchange Act Rule 17a-4(b)(4). The firm’s written procedures required representatives to verify any manually entered data on consolidated reports, but the firm did not require supervisors to confirm whether representatives were complying with this responsibility or verify the accuracy of information that representatives manually entered into consolidated reports.
The firm’s procedures also failed to address consolidated reports that representatives shared with customers via the firm’s proprietary system or via third-party vendor platforms. The procedures prescribed no system for supervisory review of consolidated reports sent via such methods and failed to address the retention of those reports in the firm’s books and records. As a result, the firm failed to reasonably supervise and retain tens of thousands consolidated reports sent to firm customers.
In addition to the proprietary system, the firm permitted its representatives to use two third-party vendors to generate consolidated reports but did not supervise the activity conducted through the web-based portals. Finally, the firm allowed representatives to issue “custom” consolidated reports using templates created through word processing or spreadsheet software. After the firm approved the use of a template submitted by a representative, that representative could use the template to manually create consolidated reports to send to customers. While the firm could identify the number of custom templates it approved, it did not track and was unable to determine how many consolidated reports were generated or provided to customers using the approved templates. Cetera Advisors has now updated its supervisory system, including its WSPs, to address the issues concerning its consolidated reports.
