Omaha securities clearing firm COR Clearing has been fined $1 million by its industry regulator for lax internal procedures, most of which occurred under the previous owner and which included “numerous failures to comply with anti-money-laundering” provisions.
The company formerly known as Legent Clearing also was ordered by the Financial Industry Regulatory Authority to hire an independent consultant to review its policies; to seek FINRA approval of new procedures; and to certify that top executives have reviewed key records before submitting them to FINRA.
FINRA, the brokerage industry’s self-regulating organization authorized to police the business by the Securities and Exchange Commission, said the violations were identified during “multiple examinations” from 2009 to 2013. They included “numerous repetitive violations” from year to year, FINRA said.
“COR’s history of multiple violations in these key compliance areas resulted from its weak culture of compliance,” said Brad Bennett, FINRA’s enforcement chief. “This is particularly troubling given the amount of deposits and sales of low-priced securities through COR’s introducing firms — a major area of concern for FINRA.”
COR, with about 110 Omaha employees, said in a statement that it agreed to the settlement with FINRA without admitting or denying the findings. The company described many of the FINRA findings as going back several years and said that most are related to the previous management regime. COR also said there is “no dispute” with FINRA about the state of current compliance efforts.
COR President Carlos Salas said in an interview that the new ownership group was aware of prospective problems when it purchased Legent Clearing in 2011; part of the deal, he said, was conditional compensation from the old owners to handle the prospect of FINRA fines levied on the new ones.
“Settling these long-standing open issues with FINRA allows us to move forward with our plans for further growth and improvement,” Salas said. “While agreeing to economic sanctions is never a happy decision, I am pleased that we settled for an amount that is less than we would have paid counsel to litigate and much less than the indemnification limits the prior owners of the firm provided for the resolution of these types of issues.”
Salas said FINRA’s findings included no allegations of illegal acts and no willful misconduct. No one, he said, lost any money related to the compliance issues.
COR performs stock clearing services, or the handling of the record keeping, payment exchange and other administration involved when their customers — stock brokerages around the country — buy or sell shares or other securities on behalf of their clients.
FINRA said in a statement Monday that COR’s money-laundering surveillance system “suffered a near-complete collapse,” curbing the company’s investigations into suspicious activity. The company, FINRA said, serves a number of brokerages specializing in the shares of low-priced and micro-cap stocks, which the watchdog said merit extra vigilance for money laundering and other violations.
“Notwithstanding the heightened anti-money-laundering risk, FINRA found that COR’s surveillance program failed to identify ‘red flags’ related to its correspondent firms and transactions by their customers,” FINRA said.
Other violations, according to FINRA, included erroneous computations related to customer accounts; inaccurate reporting; failure to retain and review emails; and failure to ensure the president was properly registered as a principal officer.
Salas, COR’s president, said the current ownership group acquired the company in May 2012 and immediately began correcting the anti-money-laundering issues, a development he said was noted at the time by FINRA.
“We have been the fastest-growing clearing firm in the country since that time and the largest independent clearing firm serving the needs of over 90 broker dealers across the country,” Salas said.
The company began as part of Mutual of Omaha and evolved into Legent Clearing, a privately held company. In 2011, Legent was acquired by COR Securities Holdings Inc.
COR Securities, Salas said, is owned by a group of private investors experienced in the financial services industry. The company’s offices are in west Omaha, at 93rd Street and Underwood Avenue. It plans early next year to move downtown into space at the 1200 Landmark Center.