Washington–(Business Wire) — The Financial Industry Regulatory Authority (FINRA) revealed today that a FINRA extended hearing panel censured Albany, NY-based broker-dealer C.L. King & Associates, Inc. and fined the company $750,000 for negligently making product misstatements and omissions to providers about the company’s redemption of financial obligation securities on behalf of a hedge fund customer. The hearing panel also found that C.L. King and its AML Compliance Officer, Respondent Gregg Alan Miller, who was suspended in a primary capability for 6 months and fined $20,000, cannot develop and carry out a sensible AML program and cannot effectively react to warnings associated with the liquidation of billions of shares of cent stocks a sign of possibly suspicious activity by 2 clients. The choice solves charges brought by FINRA’s Department of Enforcement in April 2016.
According to the hearing panel choice, the supervisor of the hedge fund opened joint accounts at C.L. King with terminally ill individuals as joint renters with rights of survivorship. The hedge fund’s method included using the accounts to acquire affordable business bonds which contained a survivor alternative, or “death put.” The death put function enabled the supervisor of the hedge fund, as the joint account’s survivor, to redeem the financial investments from providers– through C.L. King– for the complete principal quantity before maturity upon the death of a joint occupant. The hedge fund paid terminally ill individuals $10,000 to accept open a joint account with the supervisor of the fund. The supervisor and fund got recommendations to open joint accounts from a hospice in New Jersey. The hearing panel found that C.L. King had a commitment to divulge to companies throughout the redemption procedure that terminally ill joint renters were not, in reality, advantageous owners of the financial investments because the hedge fund needed them to sign side arrangements where they accepted quit their ownership rights to the properties in the joint accounts.
In addition, different from C.L. King’s financial obligation securities business, from 2009 to 2014, the company offered billions of shares in cent stocks on behalf of 2 clients. Among the clients, a bank based in Liechtenstein offered 41 countless shares of 40 cent stocks producing more than $4.8 million in earnings and the other customer offered more than 11 billion shares in 138 stocks for profits of more than $14 million. The hearing panel found that C.L. King and Miller cannot customize its AML program to the dangers provided by its cent stock business and did not keep track of the consumers’ trading activity for warnings a sign of possible money laundering. Participants neglected warnings that consisted of, for instance, the providers whose stock the clients offered produced little or no profits and they had little history of working. The stocks were typically the topic of marketing activity on the Internet around the time the consumers offered their shares. In many cases, promoters were spent for promoting the stocks. The advertising activity was a warning recommending the possible presence of a pump-and-dump plan. The 2 consumers often offered a big portion of a company’s impressive shares.
The hearing panel also found that the company and Miller cannot carry out sufficient due diligence into the trading activities of the Liechtenstein bank, foreign banks as specified by the Bank Secrecy Act, which binds companies to participate in an increased evaluation of the cash laundering dangers provided by such a customer.
Unless the hearing panel’s choice is attracted FINRA’s National Adjudicatory Council (NAC) or is required evaluation by the NAC, the hearing panel’s choice becomes last after 45 days.
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