Pictet Overseas Inc., Blue Ocean ATS
Blue Ocean ATS, which handled 95% of all overnight trading volume since its inception, including a substantial volume of low-priced securities, was fined $550,000 for AML supervisory violations related to low-priced securities transactions.
Both firms failed to develop and implement AML compliance programs reasonably designed to detect and cause the reporting of suspicious transactions in low-priced securities. The thin trading volumes, price volatility and limited public information of low-priced securities make them attractive targets for manipulative schemes and fraudulent activity. Effective AML programs are essential for firms that handle low-priced securities transactions to help detect suspicious patterns and prevent illegal activity.
Pictet executed approximately $300 million of low-priced securities transactions involving more than 150 million shares from February 2022 to March 2023, including nearly $30 million of over-the-counter securities. More than 70% of these transactions occurred through an omnibus account held by the firm’s foreign financial institution (FFI) affiliate. In June 2021, another regulator alerted Pictet to certain deficiencies in its AML program. Despite this warning and its customers’ low-priced securities transactions, Pictet failed to take timely corrective action. The firm did not implement an AML compliance program reasonably designed to detect and cause the reporting of suspicious transactions in low-priced securities from September 2021 to February 2025.
Pictet also failed to commit adequate resources to its AML program and, until February 2023, relied on manually compiled daily reports that could not effectively identify patterns of suspicious activity. As a result, Pictet did not detect or reasonably investigate red flags of suspicious activity involving low-priced securities. This included instances where customers’ trading represented significant portions of daily market volume—in some cases, more than 20% on individual days. Pictet also did not implement a reasonably designed due diligence program for FFI correspondent accounts, including by failing to conduct periodic reviews of FFI account activity. Pictet’s supervisory system and procedures also were not reasonably designed to achieve compliance with Section 5 of the Securities Act of 1933 in connection with low-priced securities.
Despite the rapid growth in Blue Ocean’s overnight trading business and the known risks associated with low-priced securities trading, the firm failed to develop and implement—since at least January 2023—an AML compliance program reasonably tailored to the risks of its business and reasonably designed to detect potentially manipulative trading. Blue Ocean’s monitoring consisted primarily of manual reviews by a single employee of a wash sale report and a low-priced securities report, which were insufficient to identify patterns of potential manipulative activity. In practice, the firm conducted no surveillance for spoofing, layering and other manipulative order entry patterns. As a result of its deficient supervision, Blue Ocean failed to detect and investigate red flags of potentially suspicious order schemes.
