TradeUp Securities & US Tiger Securities

TradeUp Securities, Inc. was fined $700,000 and affiliate US Tiger Securities, Inc. (US Tiger) was fined $250,000 for failing to develop and implement reasonably designed AML programs to detect and report potentially suspicious transactions. Both firms serviced foreign financial institution (“FFI”) omnibus accounts that transacted in thinly traded low-priced securities. US Tiger relied on a manual review of its daily trade blotter and two daily reports generated from its order management system to detect and review for red flags in securities trading. Neither the blotter nor the daily reports identified patterns for review of potentially suspicious activity. US Tiger later began to use exception reports designed to identify patterns of suspicious activity, including wash trades and spoofing. However, these reports generated significant false positives and US Tiger did not regularly review them. US Tiger also reviewed outgoing securities and money movements but failed to routinely review incoming securities and money movements. As a result, US Tiger did not have a reasonable system in place to identify potentially suspicious deposits of low-priced securities.

 US Tiger ultimately transferred the FFI omnibus accounts to TradeUp and took steps to update its AML procedures. TradeUp primarily relied on a manual review of the daily trade blotter to identify suspicious trading. However, the daily blotter review was not reasonably designed because it did not identify patterns for review of potentially suspicious activity across accounts or multiple days. TradeUp had access to exception reports including alerts specific to wash trades and spoofing. However, these reports generated significant false positives and did not allow for review of potentially suspicious trading patterns across accounts or days. These reports also failed to flag escalating buy order patterns within and across the FFI omnibus accounts. TradeUp did not have procedures or guidance for reviewing the available reports, and as a result, any review performed was ad hoc and not comprehensive. As a result, TradeUp failed to detect potentially suspicious trading activity in thinly traded low-priced securities.

 Further, TradeUp failed to timely review the wash trade and spoofing reports and investigate any potential red flags identified in those reports and failed to conduct any AML review of deposits of low-priced securities in the omnibus accounts of its foreign affiliates. TradeUp developed proprietary in-house exception reports to surveil activity in low-priced securities. However, the reports provided inaccurate information regarding trade volume and quantities of stock transfers and money movements due to coding errors. As a result, TradeUp failed to detect and investigate potentially suspicious securities deposits.

 The findings also stated that US Tiger failed to establish and implement, and TradeUp failed to implement, a reasonable due diligence program designed to assess the money laundering risk posed by FFI correspondent accounts. US Tiger’s procedures both failed to set forth any guidelines specific to the due diligence or review of correspondent accounts of FFIs and incorrectly stated that it did not have or intend to open any correspondent accounts for foreign financial institutions. Further, US Tiger designated three correspondent accounts held by a FFI that had received a formal warning from its local regulator for AML deficiencies as “low-risk.”

 TradeUp failed to conduct due diligence of FFI correspondent accounts. Among the foreign financial institution correspondent accounts that TradeUp carried for the foreign affiliates were accounts actively trading in low-priced securities, and accounts that included as customers other foreign financial institutions, offshore banks, money service businesses, and politically exposed persons. TradeUp did not assess the risks posed by these accounts until it identified the accounts as “high-risk.” After identifying the accounts as high-risk, the firm did not implement risk-based controls or procedures specific to these accounts.

Next
Next

SpeedRoute LLC