SEC Charges Archipelago Trading Services with Failing to File Suspicious Activity Reports

The Securities and Exchange Commission has formally announced charges against Archipelago Trading Services Inc. (ATSI) due to its failure to submit numerous mandatory reports regarding suspicious financial transactions, commonly referred to as Suspicious Activity Reports (SARs), during the period spanning from August 2012 to September 2020. These charges pertain to transactions involving over-the-counter (OTC) securities that were carried out on ATSI’s alternative trading system (ATS). In a resolution to this matter, ATSI, a brokerage firm based in Chicago, has opted to settle the charges by agreeing to pay a total of $1.5 million.

According to the findings outlined in the SEC’s order, ATSI’s primary business revolves around the operation of an ATS dedicated to OTC equity securities, named Global OTC. This platform serves as a means for broker-dealers to execute trades involving OTC securities. It holds particular significance in facilitating transactions for microcap and penny stock securities, which are characterized by their exclusion from any national exchange listings and their inherently high-risk nature. Notably, despite the substantial volume of daily high-risk transactions within the microcap and penny stock realm on Global OTC, the SEC order highlighted that ATSI failed to establish a comprehensive anti-money laundering surveillance program for its transactions until September 2020.

The SEC’s order further elucidates that this lapse in surveillance led to ATSI’s inability to identify potential warning signs associated with suspicious manipulative trading practices, such as spoofing, layering, wash trading, and pre-arranged trading. Consequently, the order contends that ATSI neglected to file a minimum of 461 SARs, with a majority of these cases involving microcap or penny stock securities.

Daniel R. Gregus, Director of the SEC’s Chicago Regional Office, emphasized, “All broker-dealers registered with the SEC have a duty to uphold the mandates of the Bank Secrecy Act, which includes the obligation to submit SARs. When entities like ATSI fail to delve into indicators of concern, especially in the realm of higher-risk microcap and penny stock securities, they jeopardize the well-being of the investing public.”

The order issued by the SEC establishes that ATSI violated Section 17(a) of the Securities Exchange Act and Rule 17a-8. While not explicitly acknowledging or denying the SEC’s findings, ATSI has concurred to a censure and a cease-and-desist order, alongside the stipulated $1.5 million penalty, in order to conclude this matter.