From the filing...
“ii. Manipulative Microcap Securities Trading
Likewise, certain of the Firm’s customers engaged in extensive microcap securities trading, but Interactive Brokers did not reasonably surveil that trading. Rather, the Firm’s analysts identified suspicious microcap securities trading only if they noticed it through their more generalized reviews of customer trading.
As a result, Firm analysts failed to identify red flags of manipulative microcap securities trading by its customers. For example, a company located in Belize controlled by Bulgarian and Swiss nationals (“Customer 2”) netted approximately $2.6 million through manipulative trading of an Over-the-Counter (“OTC”) listed microcap security. Customer 2 opened an Interactive Brokers account in December 2014 and deposited four million shares of the microcap security in January 2015. Just two weeks later, Customer 2 sold its microcap securities holdings and immediately withdrew the sale proceeds. Shortly before Customer 2 began selling, the microcap security’s price and volume each increased by more than 2,000%, a rise that continued while Customer 2 sold its stock. The microcap security’s trading volume, for instance, increased from 270,000 shares in December 2014 to 22 million shares in March 2015 as Customer 2 sold its position. Customer 2’s trading constituted approximately 45% of the microcap security’s trading on 9 of the 19 days that it traded. Customer 2 also purchased small amounts of the microcap security to support the stock’s price when it faced downward pressure. Those transactions lacked an economic purpose as Customer 2 immediately liquidated the shares at lower prices.
Interactive Brokers identified Customer 2’s multi-million dollar withdrawal from its account on the report, discussed above, that monitored deposits and withdrawals, but the AML analyst closed the review with a template response and without noting Customer 2’s trading in the microcap security. The Firm also closed nine reviews that identified Customer 2’s sales during the last 20 minutes of trading sessions with template responses that the trading appeared “normal.” Interactive Brokers failed to conduct an AML review of Customer 2’s trading or file a timely SAR even after receiving a formal inquiry from FINRA in March 2015 regarding Customer 2’s trading in the microcap security.”
“ii. Manipulative Microcap Securities Trading
Likewise, certain of the Firm’s customers engaged in extensive microcap securities trading, but Interactive Brokers did not reasonably surveil that trading. Rather, the Firm’s analysts identified suspicious microcap securities trading only if they noticed it through their more generalized reviews of customer trading.
As a result, Firm analysts failed to identify red flags of manipulative microcap securities trading by its customers. For example, a company located in Belize controlled by Bulgarian and Swiss nationals (“Customer 2”) netted approximately $2.6 million through manipulative trading of an Over-the-Counter (“OTC”) listed microcap security. Customer 2 opened an Interactive Brokers account in December 2014 and deposited four million shares of the microcap security in January 2015. Just two weeks later, Customer 2 sold its microcap securities holdings and immediately withdrew the sale proceeds. Shortly before Customer 2 began selling, the microcap security’s price and volume each increased by more than 2,000%, a rise that continued while Customer 2 sold its stock. The microcap security’s trading volume, for instance, increased from 270,000 shares in December 2014 to 22 million shares in March 2015 as Customer 2 sold its position. Customer 2’s trading constituted approximately 45% of the microcap security’s trading on 9 of the 19 days that it traded. Customer 2 also purchased small amounts of the microcap security to support the stock’s price when it faced downward pressure. Those transactions lacked an economic purpose as Customer 2 immediately liquidated the shares at lower prices.
Interactive Brokers identified Customer 2’s multi-million dollar withdrawal from its account on the report, discussed above, that monitored deposits and withdrawals, but the AML analyst closed the review with a template response and without noting Customer 2’s trading in the microcap security. The Firm also closed nine reviews that identified Customer 2’s sales during the last 20 minutes of trading sessions with template responses that the trading appeared “normal.” Interactive Brokers failed to conduct an AML review of Customer 2’s trading or file a timely SAR even after receiving a formal inquiry from FINRA in March 2015 regarding Customer 2’s trading in the microcap security.”
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