SEC Charges OTC Link LLC with Failing to File Suspicious Activity Reports
On August 12, 2024, the Securities and Exchange Commission (“SEC“) announced charges against OTC Link LLC, a New York-based broker-dealer, for failing to file numerous reports of suspicious financial transactions, known as Suspicious Activity Reports (SARs), for a period of more than three years. OTC Link agreed to pay $1.19 million to settle the charges.
To help detect potential securities law and money-laundering violations, broker-dealers like OTC Link are required to file SARs describing suspicious transactions conducted through their firms. According to the SEC’s order, OTC Link is an indirect, wholly-owned subsidiary of OTC Markets Group, Inc. It has been registered with the SEC as a broker-dealer since 2012. OTC Link’s sole line of business is its operation of three alternative trading system (ATS) platforms, OTC Link ATS, OTC Link ECN, and OTC Link NQB. The three OTC Link ATSs are used by broker-dealers on a daily basis to execute or facilitate tens of thousands of transactions in over-the-counter (OTC) securities, many of which are considered microcap or penny stock securities.
The SEC’s order finds that, from March 2020 through May 2023 (the “Relevant Period”), OTC Link failed to adopt or implement reasonably designed anti-money laundering (AML) policies and procedures to surveil transactions conducted through its ATSs for possible red flags of suspicious activity. As a result, OTC Link did not file a single SAR over this time period.
In particular, during the Relevant Period, OTC Link failed to surveil for, recognize and investigate red flags of: (a) sell orders from subscribers representing a large volume of trading relative to the average daily trading volume in thinly-traded microcap issuers; (b) consistent one-sided trading by a subscriber in a particular thinly-traded microcap issuer accompanied by a significant increase in stock price; (c) trading activity by subscribers involving apparent pre-arranged securities trading, including wash or cross trades, in thinly-traded microcap securities; or (d) transactions involving subscribers who were publicly known to be the subject of criminal, civil or regulatory actions for crime, corruption, or misuse of public funds.
The SEC’s order finds that OTC Link violated Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8 thereunder. Without admitting or denying the SEC’s findings, OTC Link agreed to a censure and a cease-and-desist order in addition to the $1.19 million penalty. The SEC’s order also directs OTC Link to continue its engagement of a compliance consultant to review and recommend changes to the firm’s AML policies and procedures.
For further information about this securities law blog, please contact Brenda Hamilton, Securities Attorney, at 200 E. Palmetto Park Rd, Suite 103, 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 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.
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Brenda Hamilton, Securities Attorney
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