TradeUP & US Tiger Securities Settle with FINRA Over AML & Communications Violations

Key Takeaways

• Fines and Sanctions: TradeUP Securities and US Tiger Securities have agreed to a $950,000 fine for violations related to anti-money laundering (AML) programs and communications retention, with US Tiger paying $250,000 and TradeUP paying $700,000.
• AML Deficiencies: Both firms failed to implement adequately designed AML procedures, leaving them unable to detect suspicious transactions, such as wash trades and spoofing, especially involving low-priced securities traded by foreign financial institutions.
• Communications Violations: US Tiger and TradeUP violated retention rules by using an electronic messaging platform with an automatic deletion feature, resulting in the loss of critical communications that should have been preserved for at least three years.
• Independent Consultant: TradeUP must hire an independent consultant to review and improve its compliance with AML regulations and the Bank Secrecy Act, ensuring future compliance and the implementation of necessary changes.

Deep Dive

TradeUP Securities (TradeUP) and US Tiger Securities (US Tiger) have agreed to a hefty $950,000 fine for failing to meet key regulatory standards. The issues stem from violations related to their anti-money laundering (AML) programs, their failure to conduct adequate due diligence on foreign financial institution correspondent accounts, and a troubling lapse in communications retention. While the firms did not admit to the violations, the settlement resolves the matter without the threat of further action from FINRA, provided the terms are met.

The firms, which are part of the same offshore holding company, were found to be lacking in their efforts to detect suspicious trading activities and transactions—an especially critical issue given the thinly traded, low-priced securities they dealt with. Between 2019 and 2023, both TradeUP and US Tiger were responsible for omnibus accounts held by foreign financial institutions, an inherently high-risk segment. Unfortunately, their AML programs were not designed to catch red flags such as wash trades, spoofing, and layering, key indicators of potential money laundering or market manipulation.

But the deficiencies didn’t stop there. The firms also failed to meet the basic requirements for communications retention. Between 2019 and 2021, an electronic messaging platform used by the firms’ employees had a feature that automatically deleted messages, preventing the firms from maintaining the necessary records required under FINRA rules. This is a serious compliance issue, especially considering how critical these communications are for regulatory reviews.

The Violations

FINRA’s investigation pointed to several key failings. For starters, US Tiger and TradeUP’s AML programs were not reasonably designed to detect suspicious transactions in their respective business models. The firms failed to use appropriate reports to spot suspicious activity, leaving them vulnerable to potential illegal trading. Their AML systems weren’t updated to monitor red flags for issues like spoofing or wash trading, and even when reports did identify these risks, they were not acted upon in a timely manner. Additionally, there were gaps in their due diligence procedures for foreign financial institution correspondent accounts, making it easier for high-risk clients to slip through the cracks.

Beyond the AML violations, the firms’ failure to retain and supervise electronic communications raised serious concerns. The platform used by employees, which facilitated internal and external communication, did not preserve messages for the required three-year period. This left the firms without the necessary evidence should a regulatory investigation be triggered. Simply put, the firms were not up to standard when it came to record-keeping.

To settle the case, US Tiger and TradeUP have agreed to pay fines totaling $950,000—$250,000 for US Tiger and $700,000 for TradeUP. The fines serve as a stark reminder of the importance of following the rules, especially when dealing with sensitive areas like AML and communications retention.

For TradeUP, the settlement also comes with an added responsibility: the firm must retain an independent consultant to review its compliance procedures and offer recommendations for improving its AML program and due diligence processes. This consultant will have a clear mandate: to ensure the firm fully complies with FINRA Rule 3310 (AML) and the Bank Secrecy Act. The consultant will also work closely with TradeUP to ensure these changes are not just theoretical, but are effectively implemented.

What Happens Next?

The firms have committed to making the necessary changes to their processes, including revamping their AML monitoring systems, conducting enhanced due diligence, and better supervising communications. It’s not just about paying a fine, this settlement is a wake-up call that calls for lasting, tangible improvements in how both firms conduct business moving forward. The independent consultant's role will be crucial in ensuring these steps are actually taken, and that TradeUP adopts a more proactive, compliance-first mindset.

This case also highlights a larger, more systemic issue that many firms face when dealing with high-risk accounts, such as those belonging to foreign financial institutions. Without proper oversight and the right procedures in place, even small lapses can lead to significant regulatory fallout. For both US Tiger and TradeUP, the settlement is an opportunity to turn the page and improve their practices, ensuring that they meet the necessary standards for both their clients and regulators.

In the world of securities and compliance, it’s not just about avoiding penalties, it's about doing the right thing at the right time. The penalties here may sting, but if handled well, this settlement could act as a much-needed catalyst for change in the firms’ compliance structures. If anything, it should serve as a cautionary tale for others in the industry, reminding them of the serious consequences of failing to meet basic regulatory requirements.

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