Reporting Failures Cost Aegis Financial $1.3M In Fines

FINRA and the SEC has fined Aegis Capital $1.3 million stemming from multiple reporting violations, including failing to report suspicious trades to the SEC. The regulators also allege that Aegis CEO and owner Robert Eide was responsible for causing the violations when he failed to respond to reports of suspicious activity. He was fined separately.

Aegis was fined for four separate violations:

• Robert Eide, failure to file, $40,000
• Aegis’ willful negligence to file, $750,000
• Secondary settlement, $550,000, for failure to have adequate AML programs in place
• Kevin McKenna, $20,000, aiding and abetting violations

According to FINRA’s investigation, Aegis failed to adequately monitor or investigate trading in seven DVP (“delivery versus payment”) customer accounts that liquidated billions of shares of low-priced securities. This resulted in millions of dollars in proceeds for those customers. Several of the customers were foreign financial institutions that prompted transactions on behalf of their underlying customers, who were unknown to Aegis.

SARs are required to be filed by broker-dealers for certain transactions that are suspected to involve fraudulent activity or “have no business or apparent lawful purpose.”  The SEC’s order found that Aegis failed to any file SARs on suspicious transactions that raised the red flags. This indicates that the transactions in question could be related to market manipulation of low-priced securities.

Aegis and Eide should have flagged these transactions and filed suspicious activity reports (SRP), since they raised concerns about money-laundering. The transactions occurred between late 2012 and early 2014, but Aegis’ own internal system failed to red-flag any of them, Eide ignored the warnings given by several employees, and no SRPs were filed. Two Aegis employees were also given administrative charges by the SEC for allegedly being responsible for violating disclosure rules.

Aegis was also found to have inadequately trained its involved employees in AML (anti-money laundering) issues that were associated with the suspicious trades. The company’s trading surveillance system would normally raise red flags for suspicious transactions, but was not working properly at the time. Employees also have the ability to raise alerts, but failed to, and did not file the proper reporting.

The SEC alleges that former AML compliance officer at Aegis, Kevin McKenna, “aided and abetted” the firm’s violations. The SEC has prohibited him from serving in a compliance or AML capacity in the securities industry, but he does have the right to reapply. The SEC alleges that another Aegis employee, Eugene Terracciano, has also been accused of failing to file SARs on behalf of the company. The SEC has also scheduled an upcoming administrative hearing for Terraciano’s case.

The New York City-based brokerage agrees to hire and retain a compliance expert as part of the FINRA agreement. The company maintains that clients have not been impacted.

The SEC’s press release detailing their decision is available on their website.