The U.S. broker-dealer hadn’t monitored hundreds of millions of dollars of customers’ wire transfers for money laundering concerns and failed to report potential manipulation of microcap securities in customer accounts, regulators said.
The total fine stemmed from coordinated settlements with the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission and the Financial Industry Regulatory Authority, a Wall Street self-regulatory group.
Interactive Brokers consented to the settlements without admitting to or denying the regulators’ findings. A spokesperson for the broker-dealer said it had cooperated fully with the regulators and that steps it had taken to enhance its anti-money-laundering safeguards were taken into account in the settlements.
Finra’s action focused on a period from January 2013 through September 2018 during which Interactive Brokers grew to become one of the largest electronic broker-dealers in the U.S. based on shares traded, with more transactions cleared for foreign financial institutions than any other dealer, according to the regulator.
Interactive Brokers failed to strengthen its anti-money-laundering program in tandem with that growth, Finra said.
Even after a compliance manager warned his supervisor that “we are chronically understaffed” and “struggling to review reports in a timely manner,” it took years for the broker-dealer to materially increase staffing or enhance its safeguards, Finra said.
The SEC’s action focused on a one-year period ending in the middle of 2017. According to the SEC, Interactive Brokers during that period failed to file more than 150 suspicious activity reports flagging potential manipulation of microcap securities.
Some of the trading accounted for a significant portion of the daily volume in certain of the U.S. microcap issuers, the SEC said.
The CFTC’s action focused on a period from June 2014 to November 2018. During that time, Interactive Brokers didn’t maintain an adequate anti-money-laundering program and failed to ensure its employees followed established policies with respect to supervision of customer accounts, the agency said.
That included supervising accounts for a New York trader who was sentenced to three years in prison in 2017 after pleading guilty to defrauding investors of more than $23 million. The CFTC in 2018 won a court order requiring the trader, Haena Park, and her companies to pay restitution to the defrauded investors.
Interactive Brokers had been the futures commission merchant for Ms. Park and her companies and had failed to monitor her account activity, the CFTC said. A lawyer who represented Ms. Park in the case didn’t immediately respond to a request for comment.
Interactive Brokers failed to meet anti-money-laundering obligations under the Bank Secrecy Act and the financial record-keeping and reporting provisions of federal securities laws, the regulators said.
The CFTC said its action was the first to allege a violation of a regulation requiring its registrants to comply with the BSA. The agency said it was requiring Interactive Brokers to hire a third-party compliance consultant to review and report on the broker-dealer’s anti-money-laundering program.
Interactive Broker’s fines include two $11.5 million civil penalties by the SEC and CFTC, and a $15 million fine by Finra. The CFTC also required the company to pay more than $700,000 in disgorgement.