August 19, 2020
J K R & Company, Inc. (JKR), a brokerage firm headquartered in Van Nuys, California, recently consented to sanctions imposed by the Financial Industry Regulatory Authority (FINRA) Department of Enforcement to resolve alleged violations of securities industry rules. JKR has two office branches and employs two registered representatives.
According to a Letter of Acceptance, Waiver and Consent (AWC), FINRA staff discovered during an examination of the firm’s sales practices that JKR failed to detect red flags of suspicious activity in four related accounts between November 2012 and December 2016. Based on conversations with the customer, JKR expected one account to be used to liquidate a penny stock and reinvest in other securities, and the other three accounts would engage in cash and margin transactions in stocks, options, mutual funds, bonds, and annuities, among other forms of securities. However, FINRA staff identified activities that were inconsistent with the expected account activity including: 1) common ownership of multiple accounts without apparent business purpose; 2) unexpected transfer activity, including extensive trading in a penny stock, between related accounts without apparent business purpose; and 3) unexplained, repetitive third-party wire transfers that were inconsistent with expected account activity. Additionally, JKR allegedly failed to detect or investigate that one of the accounts was opened several months after the account holder’s corporate president, who also controlled the account, had been barred by the Securities and Exchange Commission from participating in any offering of penny stocks.
These red flags were identified in JKR’s anti-money laundering (AML) procedures as activities that should be investigated and monitored to determine whether a suspicious activity report (SAR) should have been filed.
Based on the foregoing, JKR violated FINRA Rules 3310(a) and 2010, and without admitting or denying the allegations made against it, JKR consented to a censure and fine totaling $50,000.