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“A broker-dealer cannot place the financial markets, and its customers, at risk by its own inadequacies, especially in the areas of anti-money laundering and customer accounts,” said Susan L. Merrill, chief of enforcement, NYSE Regulation. “As these cases illustrate, adequate staffing, infrastructure, and procedures are a prerequisite to doing business.”
In the first action, (HPD No. 05-181) brought jointly with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”), regulators found Oppenheimer violated AML and suspicious-activity reporting requirements, from 2002 to 2004. These requirement are mandated under the Bank Secrecy Act.
Since April 2002, NYSE Rules require broker-dealers to establish and maintain AML programs. The Firm failed to develop an adequate AML program, and as a result lacked proper management oversight, internal controls and policies and procedures for the capture of suspicious-activity information.
The Firm failed to file suspicious-activity reports. Reports that were filed were late, incomplete and failed to provide relevant detail. Also, the AML program’s employee training was inadequate.
Related deficiencies also were uncovered at foreign branch office of the Firm, where the Firm did not require the foreign branch to verify reasons for money movements through journal transfers between unrelated accounts, including employee accounts. Nor did the Firm require complete documentation of the activity. The Firm thus failed to learn essential facts about the purpose of the fund transfers between unrelated accounts.
In this proceeding, Oppenheimer consented to censure and a $2.8 million fine, to be divided equally between the NYSE and FinCEN. The Firm has also agreed to an undertaking that requires submission of a report on the Firm’s AML policies and procedures, and the implementation of any policies, procedures and practices recommended in the report.
The other disciplinary action (HDP No. 05-190) concerns operational failures arising from the 2003 acquisition of Oppenheimer by Fahnestock & Co., Inc., among a variety of other operational and sales practice deficiencies.
In the transaction, Fahnestock acquired certain Oppenheimer retail brokerage activities from Canadian Imperial Bank of Commerce (“CIBC”). Fahnestock then transferred the accounts of the Oppenheimer customers from CIBC to Fahnestock’s books and records, a process known as account conversion. Subsequently, Fahnestock changed its name to Oppenheimer.
After the conversion in May, 2003, Oppenheimer experienced significant operational problems. For example, the Firm issued tens of thousands of inaccurate monthly statements, failed to prepare accurate net capital and reserve formula computations, and filed inaccurate FOCUS Reports.
Further, the Firm failed to make timely notification to NYSE Regulation about significant problems that arose after the conversion, although the Firm knew, or should have known, such notification was required. This is particularly notable since the Firm had been sanctioned by NYSE Regulation around the time of the conversion for failing to make such notifications.
In addition to the conversion problems, the Firm also experienced other deficiencies in the areas of mutual-fund revenue sharing, customer-account monitoring in fee-based accounts, preliminary prospectus delivery and customer-account transfers, among other parts of the business.
Oppenheimer consented to the imposition by the NYSE of a censure and a $1.35 million fine in this second proceeding.
In settling these charges brought by NYSE Regulation, Oppenheimer & Co. Inc. neither admitted nor denied guilt.
The link to FinCEN’s related news release is: http://www.fincen.gov/oppenheimer.html
About NYSE Regulation
On December 17, 2003, the SEC approved a new governance structure for the NYSE. Under the new design, the NYSE Board of Directors is comprised solely of independent directors, except for the chief executive officer, who have no affiliation with any regulated member firm. A new position of chief regulatory officer was created and reports directly to the board of directors through a new Regulatory Oversight Committee. As a result, NYSE Regulation is insulated from potential influence from NYSE members and member firms, operates separately from the business side and is independent in its decision-making.
NYSE Regulation plays a critical role in monitoring and regulating the activities of its members, member firms and listed companies, as well as enforcing compliance with NYSE rules and federal securities laws. Nearly 400 of the largest securities firms in America are members of the New York Stock Exchange. These firms service 98 million customer accounts, or 84 percent of the total public customer accounts handled by broker-dealers, with total assets of over $4 trillion. They operate from 20,000 branch offices around the world and employ 144,000 registered personnel.
Nearly 700 employees, or more than 40 percent of the Exchange’s staff, work for NYSE Regulation, which consists of four divisions: Market Surveillance, Member Firm Regulation, Enforcement and Listed Company Compliance, as well as a Risk Assessment Unit and Dispute Resolution/Arbitration.
