FINRA Cracks Down on Honeycomb Portal & BTG Pactual US Capital Over Compliance Failures

Key Takeaways

• Honeycomb Portal LLC Fined: $140,000 for failing to adhere to Regulation Crowdfunding rules, including using multiple intermediaries and not preserving required communications.
• BTG Pactual US Capital Fined: $400,000 for lapses in anti-money laundering (AML) monitoring, including improper wire transfer oversight and failure to document customer verification calls.
• Corrective Actions Required: Both firms must submit detailed plans to fix compliance gaps and ensure full regulatory adherence moving forward.
• Importance of Compliance: These actions underscore the need for financial firms to implement robust, continuously updated compliance programs to safeguard investor interests and avoid penalties.
• Broader Industry Reminder: Compliance isn’t just about avoiding fines; it’s about building trust and maintaining strong, effective systems to meet legal requirements.

Deep Dive

In the latest wave of FINRA enforcement actions, two firms are facing consequences for serious compliance missteps that have shaken the financial community. Honeycomb Portal LLC, a crowdfunding intermediary, and BTG Pactual US Capital, LLC, a broker-dealer, are each paying the price for lapses in investor protection and money-laundering oversight.

Let’s start with Honeycomb Portal, which, as a funding intermediary, should have known better. From March 2021 to January 2023, Honeycomb was involved in two Regulation Crowdfunding (Reg CF) offerings. Simple enough, right? Well, not quite. The problem arose when Honeycomb, despite clear regulatory guidelines, allowed another intermediary, Funding Portal A, to simultaneously serve in the same capacity for Issuer A’s offerings. This dual involvement is a direct violation of Reg CF Rule 100(a)(3), which mandates that an offering be conducted through one intermediary only.

And that wasn’t all. In what could be described as an even bigger misstep, Honeycomb failed to properly preserve crucial communications with Issuer A, violating Reg CF Rule 404(a) and FINRA’s own Funding Portal Rule 200(a). This is like forgetting to keep track of important receipts when conducting a financial transaction, something no firm should ever do.

In response, Honeycomb is now facing a $140,000 fine, a censure, and the requirement to submit a detailed corrective action plan. They have 90 days to prove they’ve fixed their systems and are following the rules. It's a hard lesson, but one that crowdfunding platforms will certainly take note of.

BTG Pactual's $400,000 Price for Sloppy Anti-Money Laundering Oversight

Meanwhile, BTG Pactual US Capital, the New York-based arm of Brazilian investment bank Banco BTG Pactual, is also in the hot seat, this time for a serious failure in their anti-money laundering (AML) practices. Between 2018 and 2022, the firm violated several critical AML rules by failing to establish proper procedures for monitoring wire transfers.

The heart of the issue? BTG wasn’t adequately reviewing outgoing wire transfers for suspicious activity. In fact, the firm’s automated monitoring system failed to flag more than 1,800 outgoing wires totaling over $450 million, which were sent to high-risk geographic areas. This was compounded by the firm’s failure to document customer verification calls required for certain transfers. It’s the kind of oversight that can have catastrophic consequences—if you’re not watching the store, the bad actors can slip through.

BTG’s failure to address these red flags led to a $400,000 fine and a censure. While the firm has since corrected these shortcomings by working with their vendor to improve their monitoring system, the damage was done. The firm has also revised its internal procedures to ensure that future wire transfer activity meets the strictest regulatory standards.

What We Can Learn From These Enforcement Actions

What can we take away from these two cases? For one, these are cautionary tales for firms across the financial spectrum, whether you're working with crowdfunding or handling billions in wire transfers. Compliance isn’t something that can be put on autopilot. Systems and procedures need to be constantly monitored, updated, and tested.

Honeycomb and BTG are both moving to fix their mistakes, and that’s the silver lining here. They’re not just paying fines; they’re taking steps to improve and ensure that these errors won’t happen again. As both Honeycomb and BTG are discovering, compliance isn’t just about avoiding fines. It’s about maintaining trust, building strong systems, and ensuring that investors and customers are protected.

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