A Financial Industry Regulatory Authority hearing panel expelled a California broker-dealer from the securities industry, for failing to implement and enforce an anti-money laundering program.
The independent regulator of brokers said AIS Financial of Westlake Village, Calif., ignored “prominent red flags and blatant suspicious activity’’ in order to achieve “financial gain.’’
From November 2005 to December 2007, AIS failed to identify, investigate and report suspicious penny stock activity in three instances, the panel said.
The firm was motivated by commissions on the liquidation of “billions of shares of penny stocks from numerous accounts’’ and as a result “turned a blind eye to the suspicious activity and concealed the activity from regulatory authorities,’’ FINRA said.
In one instance, the hearing panel said AIS failed to report suspicious activity in two corporate accounts controlled by a money management firm in Costa Rica, whose owner had been the subject of significant regulatory actions by the SEC for securities fraud in an Internet scheme. The panel found that the firm permitted the two accounts to deposit and liquidate billions of shares of penny stocks of numerous issuers, generating more than $3 million in sales proceeds for the customers and commissions of more than $53,000 for the firm.
The hearing panel also found that AIS permitted five accounts, controlled by a customer and his nephew, both of whom had disciplinary histories and criminal indictments for engaging in organized criminal activity and money laundering prior to opening accounts at AIS, to deposit and liquidate penny stocks in their accounts just two months after the SEC had charged them with securities fraud.
In addition, the hearing panel found that AIS permitted approximately 20 customers to deposit and liquidate approximately 65 million shares of low-priced and thinly traded Asia Global Holdings Corp. stock (AAGH).
The liquidations generated sales proceeds of approximately $5.1 million for the customers and commissions of $243,304 for the firm.
The panel found that the red flags on these transactions included suspicious new account forms for the customers, and liquidation activity that coincided with spikes in AAGH's trading volume.
AIS could not be reached for comment.