Chardan Capital Charged by SEC
On May 16, 2018, the Securities and Exchange Commission (“SEC”) charged Chardan Capital Markets LLC (Chardan Capital) and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS), a New York City based brokerage firm, alleging the report of suspicious sales of 12.5 billions in penny stock shares.
According to the SEC, from October 2013 to June 2014, Chardan, an introducing broker, liquidated more than 12.5 billion penny stock shares for seven of its customers and ICBCFS cleared the transactions. Chardan failed to file any SARs even though the transactions raised red flags, including similar trading patterns and sales in issuers who lacked revenues and products. The SEC found that ICBCFS similarly failed to file any SARs for the transactions despite ultimately prohibiting trading in penny stocks by some of the seven customers. As noted in the complaint, guidance for preparing SARs from the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) clearly states that “[e]xplaining why the transaction is suspicious is critical.” To help detect potential securities law and anti-money laundering practices, broker-dealers are required to file Suspicious Activity Reports (SARs) that describe suspicious transactions that take place through their firms.
“As gatekeepers to the securities markets, brokerage firms, including clearing firms, must take their anti-money laundering obligations seriously. The failure to file SARs in the face of numerous red flags is unacceptable.” said Marc P. Berger, Director of the SEC’s New York Regional Office.
The SEC’s complaint charges ICBCFS with thousands of violations of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8. The SEC’s orders found that Chardan’s anti-money laundering (AML) officer, Jerard Basmagy, aided and caused the firm’s violations. In addition, the SEC also found that ICBCFS failed to submit required documents in a timely manner to SEC staff.
In settling this matter, the parties agreed to settlements requiring Chardan to pay a $1 million penalty, ICBCFS to pay $860,000, and Basmagy to pay $15,000. Both firms agreed to censures and to cease and desist from similar violations in the future. Basmagy also agreed to an industry and penny stock bar for a minimum of three years.
For more information about this blog post, please contact a Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956 or by email at [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
