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Broker-Dealer Illegally Placed More Than $25 Million of Securities at Risk

Broker-Dealer Illegally Placed More Than $25 Million of Securities at Risk

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Electronic Transaction Clearing Agrees to Settle Charges That it Illegally Placed More Than $25 million of Customer Securities at Risk to Fund Its Own Operations

On March 19, 2018, the Securities and Exchange Commission announced that Los Angeles-based Electronic Transaction Clearing, a registered broker-dealer has agreed to settle charges that it illegally placed more than $25 million of customers’ securities at risk in order to fund its own operations.

Among other things, the SEC found that Electronic Transaction Clearing violated the Customer Protection Rule, which is intended to safeguard customers’ cash and securities so that they can be promptly returned if a broker-dealer fails.  The Customer Protection Rule requires broker-dealers to maintain physical possession or control of the fully paid and excess margin securities of customers.

In 2015, according to the SEC’s order, Electronic Transaction Clearing put customer securities at risk numerous times.  Electronic Transaction Clearing improperly transferred almost $8 million of fully-paid securities belonging to cash customers to an account at another clearing firm to meet margin requirements on borrowed funds, and the firm used more than $17 million of securities of two customers to borrow funds without consent.  The SEC’s order also finds that the company improperly commingled customers’ securities and allowed a customer’s excess margin securities to be loaned out by the other clearing firm.

The SEC’s order charged ETC with violating, among other things, the Securities Exchange Act and Customer Protection Rule.  Without admitting or denying the SEC’s findings, Electronic Transaction Clearing agreed to entry of the order and an $80,000 penalty payment, in addition to cease and desist from committing or causing any similar violations in the future and to be censured.  According to the SEC, the company cooperated with the SEC’s investigation and has taken remedial steps to prevent future violations.

INVESTORS: FINRA’s BrokerCheck is an online tool available to research a broker or brokerage firm to determine whether an individual or firm is registered, as required by law, to sell securities and/or offer investment advice.  FINRA’s BrokerCheck data provides a summary overview of a broker’s registration and employment history, qualifications, as well as “disclosure events” regarding such things as customer complaints and arbitrations, regulatory actions, employment terminations, bankruptcy filings, and criminal or civil judicial proceedings.   

Source: SEC.gov

Kehoe Law Firm, P.C.