Quick Facts
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Fine Amount: $1,300,000
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Primary Violation: Inadequate Supervision, Record Keeping & AML program failures
- Regulator: Financial Industry Regulatory Authority (FINRA)
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Relevant Period: Jan-19 > Feb-24
- Fine Date: 23-Jun-25
Overview
FINRA fined Velox Clearing LLC $1.3 million, censured the firm, and required it to retain an independent consultant and certify remediation efforts following violations of FINRA Rules 3310, 2010, 3110, 4511, and related Exchange Act provisions.
The action stemmed from the firm's inadequate anti-money laundering (AML) program, which failed to detect suspicious trading in low-priced securities through omnibus accounts, as well as failures to preserve off-channel communications and supervise outside brokerage accounts.
Details of the Case
Velox Clearing LLC, a FINRA member since 2018 headquartered in Miami, Florida, provides clearing services to domestic broker-dealers and foreign financial institutions (FFIs) on fully disclosed and omnibus bases. The firm handles trading in thinly traded, low-priced securities, including those from China-based issuers post-IPO.
FINRA's cycle examination revealed that from January 2019, Velox's AML program was not tailored to its high-risk business model, lacking surveillance tools, adequate staffing, and procedures for detecting red flags like spoofing, layering, and ramp-and-dump schemes.
The firm had no exception reports until July 2023, when it implemented only a wash trade report, and failed to conduct ongoing customer due diligence. Additionally, Velox did not preserve or review business communications on platforms like WeChat, despite prohibitions in its written supervisory procedures (WSPs), resulting in over 10,000 unretained messages.
The firm also neglected to supervise outside brokerage accounts, failing to receive duplicate statements or investigate potential violations. In response, Velox agreed to certifications and consultant reviews to address these issues.
WORKED EXAMPLES
AML BREACHES
Velox's AML procedures were not tailored to its high-risk business until January 2023. Prior to that, they were generic and did not address the firm's focus on clearing volatile, low-priced securities (e.g., small-cap China-based IPOs) through omnibus accounts for foreign financial institutions (FFIs). The procedures listed red flags but provided no guidance on detection methods, investigation steps, or SAR filing decisions. For omnibus accounts (which handled most trade flow), there were no specific risk-based procedures for ongoing due diligence, such as developing customer risk profiles or updating information.
Spoofing Example (2021)
In a one-second window, one of Customer A's omnibus accounts placed and cancelled three buy orders in a small-cap issuer at prices below, between, and above the National Best Bid and Offer (NBBO) spread. Five minutes later, the account executed a small buy order, while another Customer A account sold a much larger quantity at a higher National Best Offer.
Layering Example (2021)
Over 30 minutes, a Customer A omnibus account placed over 100 back-to-back displayed buy orders within seconds at the same or increasing prices, including above the National Best Bid and Offer, in a China-based IPO issuer. Customer A then cancelled portions and executed sell trades.
Bid Support Example (2022)
Over two days, two Customer A omnibus accounts executed sell trades in a small-cap China-based issuer, followed seconds later by placed and sometimes cancelled small-increment buy orders at higher prices. This represented a large portion of the security's daily volume.
Marking the Close Example (2023)
In a 10-second window near the trading day close, a Customer A omnibus account placed a dozen identical-quantity buy orders at increasing prices in a small-cap China-based issuer.
Ramp-and-Dump Awareness Failure (2023)
In August 2023, Velox learned that FFIs, including Customer A, had customer accounts frozen by a foreign regulator for ramp-and-dump participation, but the firm took no investigative steps.
OFF CHANNEL COMMUNICATIONS
Since January 2019, firm personnel routinely used unapproved platforms like WeChat for business communications, despite WSPs prohibiting them and requiring firm-provided systems. Examples include:
- Group WeChat chains for the trade desk and sales team, dedicated to business topics like operations and client requests.
- Communications by the CEO and operations staff with customers, involving securities movements, wire transfers, and order placements.
- Over 10,000 off-channel communications were not reviewed or retained, including text messages and third-party app exchanges.
The firm knew about WeChat use but did not implement capture, retention, or review systems. In September 2022, compliance staff instructed employees to stop using unapproved methods, but usage continued, with firm principals (including senior management) aware.
Fines and Penalties
- Total fine: $1.3 million
- Additional sanctions: Censure; certification of remediation for books and records issues within 120 days; retention of an independent consultant to review AML compliance, with a report due within 90 days and implementation of recommendations within specified timelines.
Key Quotes
"Velox failed to establish and implement an AML program reasonably designed to detect and cause the reporting of suspicious transactions given this business, in violation of FINRA Rules 3310 and 2010."
"The firm failed to utilise alerts or any other surveillance to monitor for layering, spoofing, pre-arranged trading, or trading indicative of pump-and-dump schemes in low-priced securities."
"Velox failed to review and retain more than 10,000 off-channel communications."
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