US Tiger and TradeUP Securities have reached a settlement with the Financial Industry Regulatory Authority (FINRA) following multiple compliance violations, specifically around anti-money laundering (AML) deficiencies and failures to retain electronic communications properly.
AML Compliance Lapses Lead to Penalties
The two affiliated broker-dealers, owned by an offshore parent company, were involved in servicing omnibus accounts for foreign financial institutions that engaged in trading illiquid, low-priced stocks.
FINRA’s investigation revealed that between November 2019 and March 2021 (for US Tiger) and between April 2021 and June 2023 (for TradeUP), both firms operated AML programs that failed to detect and report suspicious activities. Furthermore, they did not perform the required due diligence on correspondent accounts held for foreign financial institutions, exposing them to potential risks tied to financial crime.
These compliance shortcomings come at a time when regulatory scrutiny of foreign omnibus accounts and low-priced securities has intensified, reflecting FINRA’s commitment to strengthening the financial system’s integrity.
Failure to Preserve Communications Results in Further Sanctions
In addition to their AML deficiencies, the firms also violated critical rules related to the retention of electronic communications. From January 2019 to November 2021, US Tiger and TradeUP utilized a messaging and document-sharing application that was programmed to delete communications automatically — a clear violation of the Exchange Act and FINRA rules.
Regulations require member firms to maintain all business-related communications for at least three years to ensure transparency and facilitate future audits. However, the firms lacked policies and procedures to preserve and supervise communications exchanged through the platform.
As a result of these breaches, FINRA levied a $250,000 fine against US Tiger, while TradeUP received a steeper $700,000 penalty. Additionally, TradeUP must appoint an independent consultant to review and strengthen its compliance systems. Both firms were also officially censured under the settlement.
Attempts to obtain comments from the firms were unsuccessful at the time of publication.
Interactive Brokers Also Sanctioned in Separate Case
In a related development, FINRA recently fined Interactive Brokers $2.25 million for systemic compliance failures tied to “free-riding” violations in customer cash accounts. The misconduct spanned from October 2015 to December 2022, involving over 4.2 million instances of improper options trading without sufficient funds, breaching Regulation T and FINRA standards.
Following the settlement, Interactive Brokers has overhauled its monitoring systems and supervisory protocols. The disciplinary action has been formally recorded in the firm’s public compliance records, although no additional statements were made by the company.
