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SEC Charges Interactive Brokers with Repeatedly Failing to File SARs

66 points by kamaraju 6y ago

natcombs 6y ago
> Firm Will Pay a Total of $38 Million in Penalties to Settle With Regulators $38 million!?!? That's a expensive mistake for not submitting some paperwork that should be automated. I'd like to see a list of international government agencies and what they can/do charge for penalty fines. I suspect that the United States SEC sets a high bar compared to some of the smaller fines I've seen elsewhere. GDPR appears to be one of the top contenders https://www.tessian.com/blog/biggest-gdpr-fines-2020/ https://www.tessian.com/blog/biggest-gdpr-fines-2020/
- dclusin 6y ago
  Yeah. I feel like putting a rule that if an account trade volume exeeeds 1% of average daily volume for a stock then submit the report wouldn't be too hard. Could be done offline during trade settlement. I'm wondering if there's more rigid requirements about when to submit them.
- awinder 6y ago
  They has 1.2B in operating income in each of 2018 & 2019, they’ll be okay ;-). This does appear to be a larger than avg settlement though.
- JumpCrisscross 6y ago
  > paperwork that should be automated It’s very difficult to automate SARs. In part due to them requiring a compliance officer personally signing off on their validity.
  - bostik 6y ago
    At least you should have in-house automation flagging potential SAR cases. Then have compliance staff review those and escalate the valid ones. We have a setup like that in place, and we're a gambling operation. A broker-dealer handling far larger sums of money really has no excuse.
- epa 6y ago
  the US Patriot act / FINRA was created as a job creation measure. It is essentially an indirect tax on banks to increase jobs after the stock market crash of 2001 ("compliance").
  - A4ET8a8uTh0 6y ago
    That is pretty cynical view of it and it has certainly been a side effect ( along with creation of 'list' cottage industry ), but I would argue that it was not its purpose.
jeffbee 6y ago
Is there is some objective way that the SEC or FINRA detected activity that IB failed to report? If so does there exist an opportunity for software or systems that automate this for market participants? Suspicious Activity as a Service (SAaaS)?
- A4ET8a8uTh0 6y ago
  There is and there are market offerings in that space. Thing is, at the end of the day, you do want a live human to review it.
- james412 6y ago
  This is in the process of being implemented: https://www.sec.gov/news/pressrelease/2016-240.html https://www.sec.gov/news/pressrelease/2016-240.html better article: https://www.refinitiv.com/perspectives/future-of-investing-trading/the-consolidated-audit-trail-cat-unpacking-challenges-and-solutions/ https://www.refinitiv.com/perspectives/future-of-investing-t... I can't even begin to wrap my head around the infrastructure you'd need to handle this much daily traffic, considering it'll almost definitely be stored longer term, never mind how you'd go about querying it in any sensible manner. It's something upwards of 100 million trades per day
- webmaven 6y ago
  > Is there is some objective way that the SEC or FINRA detected activity that IB failed to report? Probably not. I suspect there was an IB-employed whistleblower... or perhaps what happened was that the SEC was already investigating some IB customer (for insider trading, market manipulation, etc.) and then, having become aware of one or more transactions that should have been reported, went digging at IB to see what else hadn't been.
sschueller 6y ago
I wonder what fines Robin Hood will need to pay for accedently allowing highly leveraged trades.
- deleted 6y ago
  [deleted]
  - deleted 6y ago
    [deleted]
deleted 6y ago
[deleted]
Havoc 6y ago
Ignoring the obvious wrong doing there is an element of bias at play here: >microcap securities If you want to trade non-mainstream stuff at decent rates IB is the main game in town. Which naturally makes them home for a more eclectic crowd. You can't go to your local community bank and say you want to buy shares in the maker of Cyberpunk 2077...on the Warsaw exchange. IB you can. Different risk profile...and that exposure comes with fkups
- maest 6y ago
  CD Projekt is hardly a microcap, it's in the Stoxx 600.
  - Havoc 6y ago
    My point was more that buying stuff on the Warsaw exchange is well into "eclectic crowd" territory for most westerners.
- valuearb 6y ago
  Yep, all my liquid assets are at IB, and I’ve traded lots of microcaps there. Earlier this year I was able to buy shares in a petroleum trust with under a half million dollar market cap!
dzhiurgis 6y ago
I haven’t used it as it, but Interactive Brokers is something like 10-100x cheaper if you need to wire cash from US to your country when compared with Transferwise and such.
- literallycancer 6y ago
  You mean for currency conversion, or to simply send USD to a foreign account?
  - dzhiurgis 6y ago
    Both cost quite a bit. Banks charge for wire + poor fx rate, where TW just for wire.
- vmception 6y ago
  and all the fintech apps have arbitrary and annoying limits. If you want to move anything over $1,000,000 and not be bothered or worried about being bothered, none of those fintech apps in US or Europe can do it. but it also helps when the big financial institutions aren't filing Suspicious Activity Reports (SARs) to begin with lol, they dgaf
xxpor 6y ago
Sigh, FINRA isn't an agency. It's a private company.
- zcrackerz 6y ago
  Sure it is, an agency is a generic term and isn't limited to government entities.
- dmurray 6y ago
  I'm not sure who you're replying to, but it's a "self-regulatory organisation". In practice it has very similar powers to the SEC and brokers take it equally seriously: it can fine you or wind down your business. It's not the Better Business Bureau. You might think, oh, FINRA is just a private company, I'll just ignore them and laugh off their attempt to sanction me. This doesn't go any better than if you do the same with the SEC. If you decide to fight a FINRA enforcement action, it gets appealed first to the SEC and then if you keep appealing it, to the courts. Exactly the same process as if you were to fight one from the SEC. FINRA is owned and run by its members so you might think it would be favourable to the brokerage industry. Which it probably is, a bit, but it doesn't seem to get accused of regulatory capture any more frequently or any more fairly than the SEC.
- whackamole 6y ago
  Creative Artists Agency isn't an agency, it's a private company.
tmaly 6y ago
This is dated August 10, 2020.
noodlesUK 6y ago
I don’t know much about Interactive Brokers, but compare this fine with the measly fine (13k) issued to Smithfield for workplace safety violations which lead to thousands of cases of covid and 4 employee deaths. Why are the fines for financial noncompliance like this orders of magnitude higher than fines for killing people?
- deleted 6y ago
  [deleted]
- _jal 6y ago
  Isn't that a bit of a self-answering question? "We" value capital more than workers. The law reflects that.
  - dls2016 6y ago
    See also: jail time for shoplifting vs. wage theft.
  - perl4ever 6y ago
    In general, financial compliance laws and regulations ensure that workers get paid and everything works. They're not limited to, like, online brokers. Lowering the fines would not improve safety.
    - _jal 6y ago
      > Lowering the fines would not improve safety. If someone made that claim, it wasn't me. It is not clear to me what your argument is or whom you're arguing with. Is the claim that financial fraud or KYC laws are designed with worker protection in mind? That's funny, but I expect you're just making a specific form of "laws support predictable outcomes..." as a hook.
      - deleted 6y ago
        [deleted]
      - 6y ago
cryptica 6y ago
It's good to see the SEC doing its job. It's not enough but it's progress. Ultimately, we need to bring back accountability by abolishing corporate personhood. If corporations were treated the same as people, most of them would be incarcerated for life or on death row by now. The current approach of fining them gives them unlimited chances to illegally exploit the system. If I profited from doing something illegal, I would be jailed as an accomplice. If a corporation does it, the executives can simply claim that they didn't know. This is fundamentally unfair. The result is that nobody is responsible for any of the millions of bad things which happen in the world. Those who implement or are aware of the wrongdoings (the employees) don't have the power to change anything. This lack of responsibility is especially dangerous in our technology-driven age.
- arrosenberg 6y ago
  You can't get rid of corporate personhood. In the absence of that concept, one would have to sue each shareholder or executive of a corporation individually in order to bring any kind of liability suit. Allowing a corporation to be recognized as a single, fictional entity is a useful tool. A better solution is making executives criminally liable for the actions of the company, the same way HIPAA holds executives and directors of covered entities personally liable for breaches.
  - cryptica 6y ago
    >> In the absence of that concept, one would have to sue each shareholder or executive of a corporation individually in order to bring any kind of liability suit. I don't see the problem with that. Imagine how much money a victim could earn from suing every person who participated in the wrongdoing. That would be totally fair IMO... Probably corporations wouldn't exist anymore (they would be sued out of existence), but that would be OK. The economy was working perfectly fine before corporations became commonplace. They are an unjust and unnatural construct IMO. It doesn't make sense to give an immortal fictitious entity the same rights as real mortal people.
    - arrosenberg 6y ago

66 points by kamaraju 6y ago

> Firm Will Pay a Total of $38 Million in Penalties to Settle With Regulators $38 million!?!? That's a expensive mistake for not submitting some paperwork that should be automated. I'd like to see a list of international government agencies and what they can/do charge for penalty fines. I suspect that the United States SEC sets a high bar compared to some of the smaller fines I've seen elsewhere. GDPR appears to be one of the top contenders https://www.tessian.com/blog/biggest-gdpr-fines-2020/ https://www.tessian.com/blog/biggest-gdpr-fines-2020/

dclusin 6y ago
Yeah. I feel like putting a rule that if an account trade volume exeeeds 1% of average daily volume for a stock then submit the report wouldn't be too hard. Could be done offline during trade settlement. I'm wondering if there's more rigid requirements about when to submit them.
awinder 6y ago
They has 1.2B in operating income in each of 2018 & 2019, they’ll be okay ;-). This does appear to be a larger than avg settlement though.
JumpCrisscross 6y ago
> paperwork that should be automated It’s very difficult to automate SARs. In part due to them requiring a compliance officer personally signing off on their validity.
- bostik 6y ago
  At least you should have in-house automation flagging potential SAR cases. Then have compliance staff review those and escalate the valid ones. We have a setup like that in place, and we're a gambling operation. A broker-dealer handling far larger sums of money really has no excuse.
epa 6y ago
the US Patriot act / FINRA was created as a job creation measure. It is essentially an indirect tax on banks to increase jobs after the stock market crash of 2001 ("compliance").
- A4ET8a8uTh0 6y ago
  That is pretty cynical view of it and it has certainly been a side effect ( along with creation of 'list' cottage industry ), but I would argue that it was not its purpose.

jeffbee 6y ago

Is there is some objective way that the SEC or FINRA detected activity that IB failed to report? If so does there exist an opportunity for software or systems that automate this for market participants? Suspicious Activity as a Service (SAaaS)?

A4ET8a8uTh0 6y ago
There is and there are market offerings in that space. Thing is, at the end of the day, you do want a live human to review it.
james412 6y ago
This is in the process of being implemented: https://www.sec.gov/news/pressrelease/2016-240.html https://www.sec.gov/news/pressrelease/2016-240.html better article: https://www.refinitiv.com/perspectives/future-of-investing-trading/the-consolidated-audit-trail-cat-unpacking-challenges-and-solutions/ https://www.refinitiv.com/perspectives/future-of-investing-t... I can't even begin to wrap my head around the infrastructure you'd need to handle this much daily traffic, considering it'll almost definitely be stored longer term, never mind how you'd go about querying it in any sensible manner. It's something upwards of 100 million trades per day
webmaven 6y ago
> Is there is some objective way that the SEC or FINRA detected activity that IB failed to report? Probably not. I suspect there was an IB-employed whistleblower... or perhaps what happened was that the SEC was already investigating some IB customer (for insider trading, market manipulation, etc.) and then, having become aware of one or more transactions that should have been reported, went digging at IB to see what else hadn't been.

sschueller 6y ago

I wonder what fines Robin Hood will need to pay for accedently allowing highly leveraged trades.

deleted 6y ago
[deleted]
- deleted 6y ago
  [deleted]

deleted 6y ago

[deleted]

Havoc 6y ago

Ignoring the obvious wrong doing there is an element of bias at play here: >microcap securities If you want to trade non-mainstream stuff at decent rates IB is the main game in town. Which naturally makes them home for a more eclectic crowd. You can't go to your local community bank and say you want to buy shares in the maker of Cyberpunk 2077...on the Warsaw exchange. IB you can. Different risk profile...and that exposure comes with fkups

maest 6y ago
CD Projekt is hardly a microcap, it's in the Stoxx 600.
- Havoc 6y ago
  My point was more that buying stuff on the Warsaw exchange is well into "eclectic crowd" territory for most westerners.
valuearb 6y ago
Yep, all my liquid assets are at IB, and I’ve traded lots of microcaps there. Earlier this year I was able to buy shares in a petroleum trust with under a half million dollar market cap!

dzhiurgis 6y ago

I haven’t used it as it, but Interactive Brokers is something like 10-100x cheaper if you need to wire cash from US to your country when compared with Transferwise and such.

literallycancer 6y ago
You mean for currency conversion, or to simply send USD to a foreign account?
- dzhiurgis 6y ago
  Both cost quite a bit. Banks charge for wire + poor fx rate, where TW just for wire.
vmception 6y ago
and all the fintech apps have arbitrary and annoying limits. If you want to move anything over $1,000,000 and not be bothered or worried about being bothered, none of those fintech apps in US or Europe can do it. but it also helps when the big financial institutions aren't filing Suspicious Activity Reports (SARs) to begin with lol, they dgaf

xxpor 6y ago

Sigh, FINRA isn't an agency. It's a private company.

zcrackerz 6y ago
Sure it is, an agency is a generic term and isn't limited to government entities.
dmurray 6y ago
I'm not sure who you're replying to, but it's a "self-regulatory organisation". In practice it has very similar powers to the SEC and brokers take it equally seriously: it can fine you or wind down your business. It's not the Better Business Bureau. You might think, oh, FINRA is just a private company, I'll just ignore them and laugh off their attempt to sanction me. This doesn't go any better than if you do the same with the SEC. If you decide to fight a FINRA enforcement action, it gets appealed first to the SEC and then if you keep appealing it, to the courts. Exactly the same process as if you were to fight one from the SEC. FINRA is owned and run by its members so you might think it would be favourable to the brokerage industry. Which it probably is, a bit, but it doesn't seem to get accused of regulatory capture any more frequently or any more fairly than the SEC.
whackamole 6y ago
Creative Artists Agency isn't an agency, it's a private company.

tmaly 6y ago

This is dated August 10, 2020.

noodlesUK 6y ago

I don’t know much about Interactive Brokers, but compare this fine with the measly fine (13k) issued to Smithfield for workplace safety violations which lead to thousands of cases of covid and 4 employee deaths. Why are the fines for financial noncompliance like this orders of magnitude higher than fines for killing people?

deleted 6y ago
[deleted]
_jal 6y ago
Isn't that a bit of a self-answering question? "We" value capital more than workers. The law reflects that.
- dls2016 6y ago
  See also: jail time for shoplifting vs. wage theft.
- perl4ever 6y ago
  In general, financial compliance laws and regulations ensure that workers get paid and everything works. They're not limited to, like, online brokers. Lowering the fines would not improve safety.
  - _jal 6y ago
    > Lowering the fines would not improve safety. If someone made that claim, it wasn't me. It is not clear to me what your argument is or whom you're arguing with. Is the claim that financial fraud or KYC laws are designed with worker protection in mind? That's funny, but I expect you're just making a specific form of "laws support predictable outcomes..." as a hook.
    - deleted 6y ago
      [deleted]
    - 6y ago

cryptica 6y ago

It's good to see the SEC doing its job. It's not enough but it's progress. Ultimately, we need to bring back accountability by abolishing corporate personhood. If corporations were treated the same as people, most of them would be incarcerated for life or on death row by now. The current approach of fining them gives them unlimited chances to illegally exploit the system. If I profited from doing something illegal, I would be jailed as an accomplice. If a corporation does it, the executives can simply claim that they didn't know. This is fundamentally unfair. The result is that nobody is responsible for any of the millions of bad things which happen in the world. Those who implement or are aware of the wrongdoings (the employees) don't have the power to change anything. This lack of responsibility is especially dangerous in our technology-driven age.

arrosenberg 6y ago
You can't get rid of corporate personhood. In the absence of that concept, one would have to sue each shareholder or executive of a corporation individually in order to bring any kind of liability suit. Allowing a corporation to be recognized as a single, fictional entity is a useful tool. A better solution is making executives criminally liable for the actions of the company, the same way HIPAA holds executives and directors of covered entities personally liable for breaches.
- cryptica 6y ago
  >> In the absence of that concept, one would have to sue each shareholder or executive of a corporation individually in order to bring any kind of liability suit. I don't see the problem with that. Imagine how much money a victim could earn from suing every person who participated in the wrongdoing. That would be totally fair IMO... Probably corporations wouldn't exist anymore (they would be sued out of existence), but that would be OK. The economy was working perfectly fine before corporations became commonplace. They are an unjust and unnatural construct IMO. It doesn't make sense to give an immortal fictitious entity the same rights as real mortal people.
  - arrosenberg 6y ago