Broker-Dealer Settles Anti-Money Laundering Charges
Dec. 19, 2018
File No. 3-18940 / December 19, 2018
December 19, 2018 - The Securities and Exchange Commission today announced settled charges against broker-dealer Central States Capital Markets, LLC ("Central States") for failing to report over $40 million in suspicious wire transfers in connection with a payday lending scam.
Broker-dealers are required to file Suspicious Activity Reports (SARs) for transactions suspected to involve fraud or with no apparent lawful purpose. According to the SEC, Central States failed to file SARs in connection with a series of transactions occurring in accounts owned by its customer, Scott Tucker. In under a three month period, between December 21, 2012 and March 13, 2013, Tucker's accounts at Central States received 18 wire transfers totaling over $40 million from external accounts held by certain tribal corporations. Central States knew, suspected, or had reason to suspect, that these wires were derived from an alleged "rent-a-tribe" scheme in which Tucker used the tribal corporations to mask his involvement in a multi-million dollar payday lending business in possible violation of state and federal laws. Both the timing and amounts of the cash transfers, and publicly available background information about Tucker, including a prior conviction for fraud, were suspicious and should have raised red flags at Central States. However, despite the suspiciousness of these transactions, the negative information concerning Tucker, and the requirements of its written procedures, Central States never filed a SAR for any of these transactions.
The SEC's cease-and-desist order finds that Central States willfully violated Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8 thereunder. Without admitting or denying the SEC's findings, Central States agreed to a settlement censuring it and requiring it to comply with certain undertakings, including an hiring an independent compliance consultant. Also today, the U.S. Attorney's Office for the Southern District of New York instituted a settled civil forfeiture action against Central States in which Central States will be required to pay civil forfeiture in the amount of $400,000. The U.S. Attorney's Office has also entered into a deferred prosecution agreement with Central States.
The SEC's investigation was conducted by James E. Burt IV, Timothy C. Nealon, and Sheldon L. Pollock. It was supervised by Lara Shalov Mehraban. The SEC appreciates the assistance of the United States Attorney's Office for the Southern District of New York.