On August 12, 2024, the Securities and Exchange Commission (SEC) took decisive action against OTC Link LLC, a New York-based broker-dealer, for neglecting to file mandatory Suspicious Activity Reports (SARs) over a period exceeding three years. The firm has agreed to pay $1.19 million to settle the charges, marking a significant enforcement effort by the SEC to ensure adherence to anti-money laundering (AML) regulations within the securities industry.
SARs are vital for detecting potential violations of securities laws and money laundering activities. Broker-dealers like OTC Link are legally required to file these reports when they identify transactions that appear suspicious. However, according to the SEC’s findings, OTC Link failed to submit a single SAR from March 2020 through May 2023, despite operating three active alternative trading system (ATS) platforms—OTC Link ATS, OTC Link ECN, and OTC Link NQB. These platforms facilitate tens of thousands of transactions daily, many involving microcap or penny stocks, which are frequently associated with higher risks of fraud and illegal activities.
The SEC’s investigation revealed that OTC Link’s AML policies and procedures were inadequately structured to monitor and report suspicious activities across its ATS platforms. This shortfall deprived regulators and law enforcement of critical information necessary to identify and address potential misconduct in the securities markets.
“Broker-dealers are critical gatekeepers to the securities markets and must diligently monitor for suspicious transactions,” stated Tejal D. Shah, Associate Regional Director of the SEC’s New York Regional Office. “When firms like OTC Link fail to file SARs, they deprive regulators and law enforcement of important information about suspicious activity.”
As a result of the SEC’s findings, OTC Link was found to have violated Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8. Without admitting or denying the SEC’s findings, the firm has agreed to a censure and a cease-and-desist order in addition to the financial penalty. Moreover, OTC Link is required to continue collaborating with a compliance consultant to review and enhance its AML policies and procedures to prevent future violations.
The SEC’s investigation was led by William Conway and Sandeep Satwalekar under the supervision of Ms. Shah from the SEC’s New York Regional Office, with support from the SEC’s Bank Secrecy Act Review Group and Alexander Lefferts from the SEC’s Office of Investigative and Market Analytics. The examination that triggered the investigation was conducted by Edward Janowsky, Hermann Vargas, and Steve Vitulano of the SEC’s Division of Examinations.
(Source: https://www.sec.gov/newsroom/press-releases/2024-96)
