The charges were related to transactions in over-the-counter (OTC) securities executed on ATSI’s alternative trading system (ATS). ATSI, a Chicago-based broker-dealer, has agreed to pay $1.5 million to settle the charges.

According to the SEC’s order, ATSI’s sole line of business is to operate an OTC equity securities ATS, known as Global OTC, which is used by broker-dealers to execute trades in OTC securities. Global OTC plays a significant role in executing trades of microcap and penny stock securities, which are not listed on any national exchange and tend to be high-risk securities. Despite thousands of high-risk microcap and penny stock securities transactions executed daily on Global OTC, the SEC order found that ATSI failed to establish an anti-money laundering surveillance program for its transactions until September 2020. ATSI therefore failed to surveil transactions executed on Global OTC for possible red flags regarding suspicious manipulative trading activity, including possible spoofing, layering, wash trading, and pre-arranged trading. As a result, the SEC’s order found, ATSI failed to file at least 461 SARs, most of which involved microcap or penny stock securities.

“All SEC-registered broker-dealers have the responsibility to comply with the requirements of the Bank Secrecy Act, including the obligation to file SARs,” said Daniel R. Gregus, Director of the SEC’s Chicago Regional Office. “When firms like ATSI fail to investigate red flags, especially those involving higher-risk microcap and penny stock securities, they put the investing public at risk.”

The SEC’s order finds that ATSI violated Section 17(a) of the Securities Exchange Act and Rule 17a-8. Without admitting or denying the SEC’s findings, ATSI agreed to a censure and a cease-and-desist order in addition to the $1.5 million penalty.

The SEC’s investigation was conducted by Ashley Dalmau-Holmes and Kristin Pauley under the supervision of Anne C. McKinley and Kathryn A. Pyszka of the SEC’s Chicago Regional Office, with assistance by SEC’s Bank Secrecy Act Review Group and Alexander Lefferts in the SEC’s Office of Investigative and Market Analytics. The examination that led to the investigation was conducted by Joseph Atatsi, Stephanie Fischer Bennett, Joon Kwak, Thomas Meier, and Jennifer Spicher of the SEC’s Division of Examinations.