21 Feb Brown Brothers Harriman & Co. Fined for Compliance Failures
The Financial Industry Regulatory Authority (“FINRA”) recently announced that it was fining Brown Brothers Harriman & Co. (BBH) $8 million for failing to meet its compliance obligations relating to anti-money laundering compliance. Such failures caused BBH to fail to discover suspicious activity related to low priced securities and allowed the distribution of unregistered securities.
The attorneys at Peiffer Rosca have handled numerous cases involving low priced securities or “penny stocks” and unregistered securities. Both categories of securities poise heightened risk to investors because they are easy vehicles with which to commit fraud and are difficult for a brokerage firm’s compliance department to monitor.
In the case of low priced securities, a bad broker can easily manipulate the trading price of a stock to his or her benefit. Peiffer Rosca has handled cases where a broker’s clientele own over 70% of the publicly available stock in a small company. In that situation, a broker is able to drive the price up by making large purchases of the low priced security in one client’s account. If the broker is inclined, he or she can then sell shares in another account, often their own, at an artificially high price and profit. Such a scheme is commonly referred to as a “pump and dump.”
Obviously, having an adequate supervisory system in place is necessary to prevent a rogue broker from perpetrating a “pump and dump” because investors do not have access to the broker’s personal trading account and are unable to track what may have caused the price fluctuations.
Similarly, unregistered securities are frequently used by bad brokers to perpetrate schemes to benefit themselves. Peiffer Rosca has handled numerous cases where a self-interested broker solicited investments in companies that he failed to register with the Securities and Exchange Commission. It is common place for these brokers to use their status as a broker or investment advisor to make these products seem legitimate. Unsuspecting investors are easily lured and taken advantage of.
In this case, BBH failed to live up to its compliance obligations in monitoring low-priced and unregistered securities. According to FINRA, in the span of three and one-half years, BBH was involved in the sale and delivery of at least six billion shares of penny stocks, many of which occurred through foreign banks in secrecy havens. BBH executed these transactions without obtaining basic information such as the identity of the stock’s owner.
Brad Bennett, FINRA Executive Vice President, Enforcement, said “The sanction in this case reflects the gravity of Brown Brothers Harriman‘s compliance failures. The firm opened its doors to undisclosed sellers of penny stocks from secrecy havens without regard for who was behind those transactions, or whether the stock was properly registered or exempt from registration. This case is a reminder to firms of what can happen if they choose to engage in the penny stock liquidation business when they lack the ability to manage the risks involved.”
While FINRA has the power to fine and even suspend bad actors, the Peiffer Rosca securities attorneys represent the actual investors who suffered the losses and seek to get their money back. As noted above, they have experience dealing with “pump and dump” schemes. The Peiffer Rosca attorneys take most cases on a contingency fee basis, advance the costs and only get paid out of the money they recover for their clients. Victims of investment fraud or misconduct may contact Joe Peiffer, Alan Rosca or Jason Kane, for a free, no obligation evaluation of the recovery options, at 585-310-5140.