Regulators Smack Interactive Brokers with $38 million Fine for Violating Anti-Money Laundering Rules

Chicago-based investor rights law firm Stoltmann Law Offices offers representation on a nationwide basis to investors that have been burned by brokerage firms like Interactive Brokers. Broker-dealers move a lot of money throughout the financial system. They make trades, do deals, and maintain custody of trillions of dollars for investors. Sometimes, though, their activities are unsavory. They may run afoul of money laundering laws, where cash is moved from one place to another to hide illegal activity.

The FBI has long suspected broker-dealers, private equity and hedge fund managers of moving money illicitly. In an investigative report made public earlier this year, the bureau highlighted “threat actors” in the money management industry who may be participating in illegal activity. The implications are far reaching, the report found:

“The FBI assumes threat actors exploit this vulnerability to integrate illicit proceeds into the licit global financial system. The FBI assesses, in the long term, criminally complicit investment fund managers likely will expand their money laundering operations as private placement opportunities increase, resulting in continued infiltration of the illicit global financial system.”

While the extent of the suspected money laundering is not fully known, the FBI probe has identified several key players in wealth management, including:

  • As of April 2019, a former partner of a major US law firm assisted others in laundering more than $400 million from a fraudulent cryptocurrency investment scheme through a series of purported private equity funds holding accounts at financial institutions, including those in the Cayman Islands and the Republic of Ireland.
  • A representative of a New York and London-based hedge fund proposed investing in private placement funds and using a series of shell corporations to purchase and sell prohibited items from sanctioned countries to the United States.
  • As of August 2017, a New York-based private equity firm received more than $100 million in wire transfers from an identified Russia-based company allegedly associated with Russian organized crime, according to a reliable source with excellent access.

Not surprisingly, several other federal financial regulators have been focused on the money-laundering issue. Securities industry regulator FINRA and other agencies recently fined Greenwich, Connecticut-based Interactive Brokers more than $38 million for anti-money laundering violations.

According to Investment News, FINRA stated that Interactive “did not reasonably investigate suspicious activity when it found it because it lacked sufficient personnel and a reasonably designed case management system.” Interactive Brokers responded to the probe and fines by stating “We cooperated fully with our regulators in these inquiries, and the significant steps that we have taken to expand and enhance our program were taken into account in today’s settlements.”

At the heart of the probe were questionable transactions that “did not reasonably surveil hundreds of millions of dollars of its customers’ wire transfers for money laundering concerns. Those wires included millions of dollars of third-party deposits into customers’ accounts from countries categorized as high risk by U.S. and international AML agencies.”

Have you invested with brokers who have sold you inappropriate investments or tried to place you in questionable offshore deals? FINRA and the SEC have strict rules on disclosing essential details on all investments sold by brokers and investment advisers.

Firms are also legally required by FINRA to monitor and supervise what their brokers are selling – their investments must be vetted and authorized by the firms – and have an obligation to investors to fully reveal true risk and return information about the vehicles sold. Investors can file FINRA arbitration complaints if these rules are broken.

If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices offers nationwide representation on a contingency fee basis which means we do not get paid until you do!

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