FINRA Uses AML Rules to Prosecute Firms that Facilitate Stock Fraud
FINRA fined 3 firms and took action against several individuals for violations of anti-money laundering rules in connection with facilitating penny stock promoters. According to FINRA, the firms ignored red flags such as deposits of large quantities of penny stocks, liquidations, and wires to offshore accounts. FINRA alleges that several of the clients had known regulatory records including AML violations. One of the firms was a clearing firm that allowed the processing of transactions by questionable introducing firms and clients.
OUR TAKE: This is a creative regulatory use of the AML rules. FINRA is basically stating that fraudulent penny stock promotion is money laundering. FINRA (and any other financial regulator) could use this logic to use the AML rules as a big regulatory club to prosecute any wrongdoing that results in cash proceeds.