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Statement on Staff Bulletin Related to Risks Associated with Offshore Omnibus Accounts Transacting in “Penny Stocks” and other Low-Priced U.S. Securities

Nov. 12, 2020

Today, the Division of Trading and Markets published a staff bulletin highlighting for broker-dealers various risks to our markets and our investors arising from certain transactions in “penny stocks” and other low-priced securities. In particular, the Commission has found that wrongdoers engage in fraud and other illicit activities involving low-priced securities through omnibus accounts maintained by foreign financial institutions. The staff bulletin reminds broker-dealers of common fact patterns and red flags and discusses their obligations in such circumstances under the Bank Secrecy Act, Rule 17a-8 under the Securities Exchange Act of 1934, Section 5 of the Securities Act of 1933, and FINRA rules.

The staff bulletin is one component of extensive, ongoing collaborative efforts among staff from the Division of Trading and Markets, Division of Enforcement, Division of Corporation Finance, and the Office of Compliance Inspections and Examinations, and draws from the staff’s experience with common red flags. The bulletin clarifies staff’s views regarding the application of key provisions of applicable law.

The staff bulletin reflects a continued commitment to identifying and eradicating fraud targeting our Main Street investors, including fraud in the “penny stock” market. In the past several years, the Commission has brought a number of enforcement actions involving allegations of unregistered securities offerings, or schemes to defraud investors, involving the use of omnibus accounts to purchase or liquidate low-priced securities.[1] These charges collectively involve allegations of hundreds of millions of dollars in illegal sales proceeds obtained at the expense of U.S. retail investors.

In addition to my colleagues at the SEC, I would like to thank our colleagues from FINRA, the Financial Crimes Enforcement Network, and the Office of Foreign Assets Control for lending their significant expertise and experience to our efforts to address fraud and misconduct in this space, including producing this staff bulletin.

[1] See, e.g., SEC v. Peter DiChiara, No. 1:20-cv-11645 (D. Mass. filed Sept. 3, 2020) (settled action); SEC v. Bajic et al., No. 20-cv-00007 (S.D.N.Y. filed Jan. 2, 2020); SEC v. Morrie Tobin et al., No. 1:18-cv-12451 (D. Mass. filed Nov. 27, 2018); SEC v. Roger Knox et al., No. 18-cv-12058 (D. Mass. filed Oct. 2, 2018); SEC v. Philip Thomas Kueber, No. 15-cv-04479 (E.D.N.Y. filed Jul. 31, 2015) (settled Oct. 26, 2018).

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