For some investors, penny stocks are addictive. The ride is exhilarating: the stocks can provide big returns, or they can crash and burn almost overnight. That volatility is one reason why financial institutions catering to these investors need to have even more stringent security measures in place to eliminate the potential of fraudulent activity.

Penny stocks are easily manipulated. With a very small investment, a buyer can create a temporary uptick in value.  It could be an easy way to launder money – unless the brokerage or institution has strict anti-money laundering (AML) processes in place.

Last week, the Financial Industry Regulatory Authority (FINRA) slapped an $8 million fine on New York-based Brown Brothers Harriman & Co. for its failure to have adequate AML programs in place to monitor and detect suspicious penny stock transactions. There were other infractions as well: failure to submit Suspicious Activity Reports (SARs) in a timely manner, inadequate supervisory systems to prevent illegal distributions of unregistered securities and the overall failure of thoroughly investigating suspicious penny stock activities. In a final coup de grace, FINRA fined the organization’s global AML compliance officer $25,000 and suspended him for nine months.

Proactively installing tighter AML compliance processes makes sense for all financial organizations, but even more so for those facing significantly higher risk on a regular basis. You can learn more about our take on the subject in this article.

by Richard Paxton

Want to learn more?  Alacer’s AML experts will be attending the 19th Annual AML & Financial Crimes Conference, being held March 16-19 at the Westin Diplomat in Hollywood, FL.  Send an email to me at Richard@alacergroup.com to arrange a chat.