Velox Clearing LLC

Velox Clearing LLC was fined $1,300,000 for failing to establish and implement an anti-money laundering (AML) program that can be reasonably expected to detect and cause the reporting of suspicious transactions. The findings stated that the firm’s AML program was not reasonably designed to address its high-risk customer base and those customers’ trading in volatile low-priced securities.

The firm’s AML procedures, which, until January 2023, were not in any way customized to the firm’s business, stated that the firm would monitor for suspicious trading activity using exception reports but did not describe what exception reports the firm would use or how the firm would review those reports to identify red flags of suspicious trading. In addition, the firm failed to commit adequate staff and resources to its AML program.

The firm had had eight different AML compliance officers (AMLCOs) and no other staff to support the firm’s AML program. The firm’s AMLCOs often had other compliance and operational tasks which consumed much of their time and prevented them from devoting sufficient time to monitoring trading occurring through the firm or implementing tools to detect suspicious trading. As a result of the firm’s failures to develop a reasonable AML program, it has failed to detect numerous red flags of potentially suspicious trading including flags indicative of spoofing, layering, bid support, and marking the close.

The findings also stated that the firm failed to preserve or reasonably supervise its employees’ use of off-channel, business-related communications. Despite the firm’s WSPs prohibiting unapproved communication platforms, firm personal routinely used unapproved text messaging and messages through an unapproved social media platform for core business communications internally and with clients.

The firm’s chief executive officer (CEO) and operations staff also routinely engaged in the social media platform communications with customers. These communications involved discussions regarding the firm’s operations as well as requests by the firm’s customers to move securities, wire funds, and place orders to be executed by the firm. In September 2022, a member of the firm’s compliance staff instructed the firm’s employees to cease using unapproved communication methods such as the social media platform. Despite that instruction, firm personnel continued to use the social media platform for business-related communications, a fact known to firm principals including senior management. As a result of these failures, the firm failed to review and retain more than 10,000 offchannel communications.

The findings also included that the firm failed to establish, maintain, and enforce a reasonable supervisory system, including WSPs, for review of outside securities accounts of its associated persons. In practice, the firm failed to document its associated persons’ outside brokerage accounts, receive duplicate statements and confirmations, or conduct review of such accounts for compliance with relevant rules and regulations. Ultimately, the firm implemented a supervisory system to review associated person’s outside brokerage accounts, which included additional training and guidance to associated persons on required disclosures.