FINRA

Laubenstein was named a respondent in a FINRA complaint alleging that as his member firm's anti-money laundering compliance officer (AMLCO), he failed to establish and implement AML policies and procedures reasonably designed to detect and report suspicious activity, including AML red flags, specific to the firm's lines of business. The complaint alleges that the firm's AML program relied upon individual registered representatives to identify potentially suspicious activity within customer accounts not identified as "high risk accounts," which, once identified, was supposed to be referred to Laubenstein to further investigate. However, the written procedures failed to specify how this process was to be accomplished, and the informal manner in which the firm's registered representatives referred potentially suspicious activity to Laubenstein meant that investigations that failed to result in a suspicious activity report (SAR) filing were neither formally documented nor otherwise memorialized. Laubenstein failed to investigate high risk account holders, including one that the firm had labeled high risk because the customer had engaged in potentially manipulative activity in connection with the sale of unregistered securities. Notably, Laubenstein failed to obtain any additional information required by the firm's AML Program concerning high risk account holders. Laubenstein failed to detect or to investigate red flags and other potentially suspicious activity within customer accounts that deposited and/or liquidated stocks. Because Laubenstein did not adequately identify or consider numerous red flags related to customer accounts, he also failed to adequately consider whether to file an SAR with respect to these accounts, as required by the Bank Secrecy Act and its implementing regulations. Laubenstein, as the AMLCO, failed to ensure that a firm registered representative complied with the firm's customer identification and verification requirements by confirming his customers' identities through the non-documentary methods described in the firm's written supervisory procedures. Laubenstein and the firm also failed to establish and implement an adequate due diligence program for correspondent accounts for foreign financial institutions as a component of its AML program, and failed to establish and implement risk-based AML procedures and controls designed to detect and report suspicious activity within correspondent accounts. The complaint also alleges that Laubenstein failed to conduct a reasonable review of a firm registered representative's email with customers using the firm's email systems, which contained red flags of potentially suspicious activity, and failed to make reasonable inquiries about the representative's communications with customers. The representative communicated by email with customers in other languages, such as Chinese. Laubenstein took no action to determine how to apply search terms to the representative's non-English written communications, even though he observed that the representative drafted translations of firm documents from English to Chinese for customers and posted signage in the firm's New York office that was written in Chinese.

Decision

Civil and Administrative Penalty(ies)/Fine(s)

$25,000.00

Monetary Penalty other than Fines

$5,500.00

Suspension

All Capacities

18 months

12/6/2021

6/6/2023

All Capacities

15 business days

6/7/2023

6/28/2023

Extended Hearing Panel Decision rendered April 5, 2019, wherein Laubenstein was fined $25,000, suspended from association with any FINRA member in all capacities for 18 months and for 15 business days, respectively, to run concurrently, and the decision shall serve as a Letter of Caution for failure to conduct proper due diligence on the Belize bank and its customer accounts. Laubenstein is ordered to pay $5,500 in costs. The sanctions were based on findings that Laubenstein's firm, acting through Laubenstein, its AMLCO, failed to establish and implement reasonable AML policies and procedures to detect, investigate, and report, where appropriate, suspicious activity. The findings stated that the transactions related to the liquidations by firm customers of the securities of three low-priced, speculative penny stocks. The firm's primary line of business was liquidating speculative, low-priced securities for its customers. The deposit and trading activity involving the three low-priced, speculative penny stocks was suspicious given the issuers' background, the manner in which the customers acquired their shares, the number of shares acquired, and the proceeds they earned from the sales. He failed to ensure that the firm's AML program was adequately tailored to reduce the risks posed by the firm's penny stock liquidation business. This enabled the suspicious activity to continue without an adequate evaluation of the customers' trading in those stocks. The findings also stated that the firm, through Laubenstein, failed to employ non-documentary means of verifying Huang, a registered representative, customers' identities for compliance with the firm's customer identification program (CIP). The firm and Laubenstein failed to conduct reasonable due diligence into the nature of a Belize bank's undisclosed customers' activities, as required by the Bank Secrecy Act's implementing regulations. The firm and Laubenstein also failed to respond to red flags associated with the undisclosed customers and their accounts. The firm and Laubenstein failed to establish and maintain an adequate due diligence program for customer correspondent accounts introduced to the firm by the Belize bank. The Belize bank did not disclose the identities of approximately 18 customers who opened accounts at the firm through the bank. Furthermore, the firm, acting through Laubenstein, failed to supervise a representative's communications with his customers in Asia. Even though the CCO knew that the representative opened accounts and engaged in transactions with customers based in Asia, he failed to inquire how he communicated with his customers generally or ensure that customers understood the substance of his communications. These included his Chinese language translations of portions of the firm's new account documents and one of the penny stocks customers' powers of attorney. Laubenstein was responsible for reviewing the representative's emails. Laubenstein reviews were limited to periodic English-language word searches of emails contained in the firm's email archive and he therefore failed to identify red flags of suspicious activity in the emails with customers about the penny stock. Laubenstein's review was also unreasonable because he took no steps to adopt search terms for the representative's non-English written communications even though he knew that he sent customers Chinese-language translations of firm documents, given the number of his customers, the customers' relationship with a customer and his assistant, and the fact that the customers lived overseas. On May 23, 2019, FINRA appealed the OHO decision to the NAC. The sanctions are not in effect pending review. NAC decision rendered October 6, 2021, wherein the findings made are affirmed and the sanctions imposed by the Hearing Panel are modified. Laubenstein's 15 business day suspension will run consecutively with his 18-month suspension. The decision is final on November 8, 2021.