The latest compliance issues in wealth management in North America.

MAS, CFTC
The US Commodity Futures Trading Commission (CFTC) and the Monetary Authority of Singapore (MAS) have signed an arrangement to cooperate more on fintech. 

The arrangement supports both authorities’ efforts to facilitate fintech development and innovation in their respective markets. This arrangement is the CFTC’s second fintech cooperation arrangement with a non-US authority and its first with an authority in Asia.

The agreement focuses on information sharing on fintech market trends and developments. 

SEC
The Securities and Exchange Commission has entered an order finding that Citigroup Global Markets misled users of a dark pool operated by one of its affiliates. 

The SEC’s order found that Citigroup misled users with assurances that high-frequency traders were not allowed to trade in Citi Match, a premium-priced dark pool operated by Citi Order Routing and Execution (CORE), when two of Citi Match’s most active users qualified as high-frequency traders and executed more than $9 billion of orders through the pool.    

The SEC order also found that Citigroup failed to disclose that over a period of more than two years, close to half of Citi Match orders were routed to and executed in other trading venues, including other dark pools and exchanges that did not offer the same premium features as Citi Match.  Citigroup also sent trade confirmation messages to certain users that indicated their orders had been executed on Citi Match when in fact those orders had been executed on an outside venue.

The SEC also found that CORE failed to register as a national securities exchange in connection with its operation of Citi Match.   

The SEC’s order found that Citigroup violated an antifraud provision of the federal securities laws and that CORE violated a registration provision.  Without admitting or denying the findings in the SEC’s order, Citigroup and CORE have agreed to be censured.   Citigroup will pay disgorgement and prejudgment interest totalling just over $5.4 million and a penalty of $6.5 million.  CORE will pay a penalty of $1 million.

Steele Financial
The SEC also charged an Indianapolis-based investment advisory firm and its sole owner with selling approximately $13 million of high-risk securities to more than 120 advisory clients – many of whom are current or former teachers or other workers in public education – without disclosing that the firm and its owner stood to receive commissions of up to 18 percent from the sales. 

The SEC’s complaint alleges that from December 2012 to October 2016, Steele Financial. and Tamara Steele sold to advisory clients and other investors more than $15 million of the securities of Behavioral Recognition Systems Inc. (BRS), a private company previously charged with fraud by the SEC.

It said that Steele and Steele Financial received commissions of cash and warrants from BRS that were worth more than $2.5 million.  Steele and Steele Financial allegedly targeted their own advisory clients who generally did not invest in individual stocks, selling more than 120 clients approximately $13 million of BRS securities without disclosing that the defendants were receiving commissions from BRS.  The complaint further alleges that the defendants created false invoices and took other steps to conceal their involvement selling BRS securities.    

The SEC’s complaint, filed in federal district court in Indiana, charges the defendants with violating the antifraud and broker-dealer registration provisions of the federal securities laws.  The SEC is seeking disgorgement of ill-gotten gains with interest, penalties, and permanent injunctions.