August 19, 2020
The Financial Industry Regulatory Authority (FINRA) Department of Enforcement recently approved a Letter of Acceptance, Waiver and Consent (AWC) submitted by Hilltop Securities, Inc., a FINRA member firm since 1972 that conducts a full-service brokerage business headquartered in Dallas, Texas, and currently has 69 office branches with approximately 492 registered individuals.
FINRA alleges in the AWC that between February 1, 2015 and April 30, 2016, Hilltop failed to establish and implement an AML compliance program designed to detect and report suspicious trading activity in low-priced securities. During this time period, Hilltop customers traded at least 2.07 billion shares of low-priced securities that were valued at approximately $221 million.
FINRA claims that these shares were not subject to review and follow-up investigation of red flags to file a suspicious activity report (SAR). Specifically, FINRA claims that Hilltop Securities failed to: 1) follow federal standards for determining factors to file a SAR, including proof of actual versus suspicious fraudulent activity; 2) implement AML procedures which requires completing Deposit Review Forms in connection with low-priced securities; and 3) reasonably detect and report suspicious trading activity through its compliance program. Thus, Hilltop Securities missed red flags of potentially suspicious activity, only reviewing 20% of the transactions, of which did not include the highest risk transactions.
FINRA further claims that Hilltop failed to: 1) submit Form G-32 information to the Electronic Municipal Market Access System for 122 primary offerings of municipal securities; 2) provide required MSRB Rule G-17 disclosure letter to issuers for 119 of 122 offerings; and 3) report on form G-37 that it had conducted municipal business.
Accordingly, FINRA asserts that Hilltop violated FINRA Rules 3110(a) and 2010 and MSRB Rule G-32, G-17, and G-37. By signing the AWC, Hilltop Securities consents to a censure, $475,000 fine, and engaging an independent consultant to conduct a review of the firm’s policies, systems, and procedures.