Oppenheimer & Co. to Pay $1.4M to FINRA For Allegedly Unregistered Penny Stock Sale & Anti-Money Laundering Violations

The Financial Industry Regulatory Authority says that Oppenheimer & Co. (OPY) will pay a $1,425,000 fine for the purported sale of penny stock shares that were unregistered and for not having an anti-money laundering (AML) compliance program that was adequate enough to identify and report suspect transactions. The financial firm also must get an independent consultant to perform a comprehensive review of its AML procedures, systems, and policies and its penny stock.

According to the SRO, from 8/18/08 to 9/20/10, Oppenheimer sold over a billion shares of twenty penny stock that were low-priced and very speculative but were not registered or lacked an exemption that was applicable. Soon after opening accounts, customers deposited huge blocks of penny stock and then liquidated them, moving proceeds out of the accounts.

FINRA contends that each sale came with “red flags” that should have spurred the firm to additional review to find out whether or not these were registered sales but that adequate supervisory assessment did not happen.The regulator also believes that Oppenheimer’s procedures and systems over penny stock transactions were not adequate and that because its AML program wasn’t focused on securities transactions it was unable to detect patterns of suspect activity linked to penny stock trades.

By agreeing to settle, Oppenheimer is not denying or admitting to the charges. It has, however, consented to the entry of findings. This is the second time Oppenheimer has purportedly violated AML obligations.

Penny Stock
According to the Securities and Exchange Commission, these are stocks that trade for under $5. Most of them are risky investments with low trading volumes. Companies trade penny tocks primarily on Pink Sheets and the OTCBB (OTC Bulletin Board). They are at risk of the types of market manipulation that are harder to conduct when the stocks are on NYSE or Nasdaq. Penny stocks are “micro-cap stocks.”

It is important that investors exercise caution when investing in penny stocks. The opportunity for big profit is countered by an even bigger possibility of large losses.

According to Investopedia, four factors that make penny stock more high risk than blue chip stocks:

• Not enough information available to the public: A lot of data about micro-cap stocks don’t come from credible sources and companies found on pink sheets don’t have to file with the SEC.

• Lack of minimum standards: Stocks found on pink sheets and the OTCBB don’t have to satisfy minimum standard requirements to stay on the exchange. Companies that are unable to stay on a major exchange can go to a smaller one.

• Insufficient history: A lot of companies that are considered to have micro-cap stocks are either new or close to bankruptcy. Track records for projecting success will be nonexistent or poor.

• Lack of liquidity: It could be hard to sell the stock and/or an investor might have to lower price to get a buyer. Low liquidity makes it easier to manipulate stock prices. The pump and dump scam of penny stock is a favorite of fraudsters.

Contact one of our penny stock fraud lawyers to find out whether you have a case.

FINRA Fines Oppenheimer & Co., Inc. $1.4 Million for Sale of Unregistered Penny Stocks and Anti-Money Laundering Violations, FINRA, August 5, 2013

The Lowdown On Penny Stocks, Investopedia

More Blog Posts:
Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud, Stockbroker Fraud Blog, April 19, 2013

Oppenheimer Funds Investors Can Proceed with Their Securities Fraud Lawsuit, Stockbroker Fraud Blog, November 19, 2011

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund, Institutional Investor Securities Blog, March 14, 2013