Initiated By
FINRA
Allegations
Boswell was named a respondent in a FINRA complaint alleging that his firm, through him its anti-money laundering compliance officer (AMLCO) and chief compliance officer (CCO), and its head of trading, failed to establish and implement AML policies and procedures reasonably designed to detect and report suspicious activity, including AML red flags, in connection with the firm's penny stock business. The complaint alleges that the firm engaged in the penny stock business, effecting transactions for customers, including a particular customer, whose primary trading activity involved the deposit and prompt liquidation of low-priced securities (also known as "penny stocks" or "microcap stocks"). The firm, Boswell, and the head of trading were aware that these customers' toxic-debt financing business model, which was disclosed at account opening, was to deposit penny stocks and immediately begin liquidating the positions. Nonetheless, the respondents failed to develop and implement an AML program to address the heightened risks inherent in these customers' activities. The firm's AML system was not tailored to reasonably cause the detection of red flags and patterns of potentially suspicious activity with regard to the firm customers' deposit and liquidation of penny stocks. In addition, the firm, through Boswell and the head of trading, failed to monitor for, detect, or further investigate the red flags for penny stock transactions identified in its own AML Plan. As a result, the firm, Boswell, and the head of trading failed to identify or investigate red flags in connection with the particular customer's deposit and liquidation of low-priced securities. Because the respondents did not adequately identify or consider numerous red flags related to this customer's liquidation of penny stocks, they also failed to adequately consider whether to file a Suspicious Activity Report (SAR) as required by the Bank Secrecy Act and its implementing regulations.
Resolution
Decision & Order of Offer of Settlement
Sanctions
Civil and Administrative Penalty(ies)/Fine(s)
Amount
$10,000.00
Sanctions
Requalification
Sanctions
Suspension
Registration Capacities Affected
Any principal capacity
Duration
30 days
Start Date
4/1/2019
End Date
4/30/2019
Regulator Statement
Without admitting or denying the allegations, Boswell consented to the sanctions and to the entry of findings that his firm, through him its AMLCO and CCO and the firm's Head of Trading (Head Trader), failed to establish and implement AML policies and procedures reasonably designed to detect and report suspicious activity, including AML red flags, in connection with the firm's penny stock business. The findings stated that the firm effected penny stock transactions for customers, whose primary trading activity involved the deposit and prompt liquidation of penny stocks. The firm, Boswell and the Head Trader were aware that these customers' toxic-debt financing business model, which was disclosed at account opening, was to deposit penny stocks and immediately begin liquidating the positions. Nonetheless, the firm, Boswell and the Head Trader failed to develop and implement an AML program to address the heightened risks inherent in these customers' activities. The Firm's AML system was not tailored to reasonably cause the detection of red flags and patterns of potentially suspicious activity with regard to the Firm's customers' deposit and liquidation of penny stocks. In particular, the Firm did not develop or implement any processes or procedures for the Head Trader or Boswell to detect market manipulation, prearranged trading, or patterns of activity indicative of pump and dump schemes. In addition, the Firm, through Boswell and the Head Trader, failed to monitor for, detect, or further investigate the red flags for penny stock transactions identified in its own AML Plan. Rather, the Head Trader, who was responsible for the day-to-day monitoring of customers' accounts and trading activity, did not treat information concerning an issuer's minimal or lack of revenues, lack of sales forces, net losses, accumulated deficits, or frequent name or business line changes to be indicative of potentially suspicious activity for penny stocks, despite the firm's written supervisory procedure (WSPs) identifying them as such. The Head Trader also did not treat a customer's high percentage of total market value as potentially suspicious given the illiquid nature of penny stock securities. The findings also stated that the firm, Boswell and the Head Trader failed to identify or investigate red flags in connection with a customer's deposit and liquidation of low-priced securities. Because the firm, Boswell and the Head Trader did not adequately identify or consider numerous red flags related to the customer's liquidation of penny stocks, they also failed to adequately consider whether to file a Suspicious Activity Report as required by the Bank Secrecy Act and its implementing regulations. Fines paid in full on March 22, 2019.
Broker Comment
TriPoint and Mr. Boswell accept offer of settlement without admitting or denying the allegations and solely for purpose of settlement. Mr. Boswell's
suspension is only related to acting in a principal capacity and not a general suspension from FINRA.