The Securities and Exchange Commission today announced settled charges against clearing firm COR Clearing LLC for failing to report suspicious sales of penny stock shares totaling millions of dollars. As part of the settlement, COR has agreed to exit a key penny stock clearing business by significantly limiting the sale of penny stocks deposited at COR.
Broker-dealers are required to file Suspicious Activity Reports (SARs) for transactions suspected to involve fraud or with no apparent lawful purpose. According to an SEC alert dated March 29, 2016, microcap securities are more susceptible to manipulation and it is often easier for fraudsters to manipulate the price of microcap stocks because microcap stocks historically have been less liquid than the stock of larger companies. The SEC’s order finds that in 2016, COR ranked second among all broker-dealers in the total dollar value of sub-$1 penny stocks that it cleared, and from January 2015 to June 2016, COR cleared for sale a significant amount of penny stock on behalf of customers of its introducing broker-dealers. The SEC finds that approximately 193 customer accounts deposited large blocks of low-priced securities, quickly sold these securities into the market, and then withdrew the cash proceeds. The SEC further finds that in some instances the same customers engaged in this suspicious pattern with multiple securities. According to the order, COR failed to file SARs with respect to a subset of the foregoing transactions and, as a result, violated the securities laws.
“SAR filings by both introducing and clearing brokers, especially those who transact in the microcap space, are critically important to the regulatory and law enforcement communities,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “The penalty imposed and the limitation placed on COR’s business reflect how seriously we take the failure to file SARs in the face of numerous red flags.”
Without admitting or denying the SEC’s findings, COR agreed to a settlement that requires it to not sell penny stocks deposited at COR with certain narrow exceptions and pay an $800,000 penalty. COR also consented to a censure and to cease and desist from similar violations in the future.
The SEC investigation was conducted by Jorge G. Tenreiro, Elizabeth Baier, Michael Fioribello, and Sandeep Satwalekar in the New York office with assistance from the Enforcement Division’s Bank Secrecy Act Review Group. The case was supervised by Lara Shalov Mehraban. The SEC’s examination that led to the enforcement action was conducted by Edward Janowsky, Stephen Bilezikjian, and Dennis Koval, and supervised by Steven Vitulano of the New York office.
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