The American brokerage firm of Interactive Brokers operates the largest electronic trading platform in the US and brokers stocks, options, futures, futures options, forex, bonds and funds. Three federal agencies have clubbed together to punish it for bad suspicious activity reporting.

It ignored other indications of such skulduggery. For a sample of 309 issuers, there were 58 instances where a customer’s sales represented at least 90% of the daily trading volume and 126 instances where a customer’s sales represented at least 70% of the daily trading volume. Interactive Brokers did not send off any SARs regarding these transactions.

On at least three occasions during the relevant period, the firm failed to file timely SARs even though it had spotted red flags in the knowledge that some of its customers had previously broken some criminal laws. In each of these three instances, it banned the customers' accounts from trading in US microcap securities whenever it spotted suspicious transactions, but did not send off SARs in a timely manner.

Consequently, by acceding to its agreement with the SEC, the brokerage has had to "cease and desist" from breaking section 17(a) ever again. It also agreed to be censured and to pay the SEC an $11.5 million penalty.

Meanwhile, the Commodity Futures Trading Commission (CFTC) has reason to believe that Interactive Brokers broke Regulations 42.2 and 166.3, 17 CFR §§ 42.2, 166.3 (2019). It says that between June 2014 and November 2018, the firm failed to diligently supervise its employees’ handling of several commodity trading accounts (one corporate, two HNW) that it held that were the subject of recent enforcement actions and non-public investigations initiated by the CFTC. In the light of these failures, the CFTC says that it lacked a reasonably designed process for conducting investigations of account activity and making decisions about SARs. Consequently, the account holders used their accounts at Interactive Brokers to defraud investors of millions of dollars. The CFTC's administrative order imposes penalties totalling $12.2 million on Interactive Brokers.

The CFTC says that Interactive Brokers' AML 'programme' contained written supervisory procedures or WSPs that spotted several red flags that might have led to SARs if they had only been acted upon. Some included situations where a customer’s account had “inflows of funds or other assets well beyond the known income or resources of the [c]ustomer,” or where a customer’s transactions and/or volume of aggregate activity were “inconsistent with the expected purpose of the account” or were “unusual and unexpected” in comparison with other market participants. The firm also apparently had no policies or procedures in place that forced its compliance people to write down the details of the steps that they were taking and the decisions that they were making while investigating matters and thinking about sending off SARs.

In 2016 the CFTC took Interactive Brokers' customers, Park Entities and related people, to court and alleged that they fraudulently induced fifty HNW members of the public to invest more than $23 million in an unregistered commodity pool that traded futures contracts as well as leveraged or margined retail off-exchange foreign currencies.

The order also said that Haena Park herself transferred the funds into her personal trading account at Interactive Brokers, where she traded on behalf of the pool. Unbeknownst to Interactive Brokers, Park also withdrew and misappropriated funds, plus commissions and fees, for her personal use. The order requires Interactive Brokers to pay a civil monetary penalty of $11.5 million and disgorge $706,214 in gains that (according to the CFTC) it should not have made.

FINRA, meanwhile, has fined Interactive Brokers $15 million for widespread AML failures which persisted for more than five years. It has also required the firm to certify that it will implement the recommendations of a third-party consultant to remedy its failures.

FINRA has decided that Interactive Brokers failed to meet its AML obligations because:

• it did not reasonably 'surveil' hundreds of millions of dollars of its customers’ wire transfers for money laundering concerns, some from third-party deposits into customers’ accounts from countries that the American Government thinks of as highly risky;
• it did not reasonably investigate suspicious activity when it found it because it lacked the requisite compliance people and a reasonably designed case management system, with one compliance manager telling his supervisor that “we are chronically understaffed;” and
• it failed to set up good policies, procedures and internal controls to govern the reporting of suspicious transactions as required by the Bank Secrecy Act 1970, with one set of cases of market manipulation resulting in SARs only after a FINRA investigation.