According to FINRA, Velocity Clearing, LLC was censured and fined $1,000,000 for failing to establish, maintain, and enforce a supervisory system reasonably designed to achieve compliance with rules prohibiting manipulative trading activity by its customers.

The Hazlet, New Jersey firm's written supervisory procedures required monitoring customer trading activity for fraudulent schemes but provided no guidance on what factors to consider when assessing surveillance alerts or customer explanations for trading under review. The procedures did not address whether the aggregate activity or number of alerts generated by a particular customer was relevant, how to document alert review, or when to escalate alerts for secondary review.

While the firm used an automated surveillance system to identify potentially manipulative trading such as spoofing, layering, cross trades, wash trading, and prearranged trading, it had not enabled the prearranged trading surveillance even after receiving inquiries from other broker-dealers about potential prearranged trading by more than 40 of its customers.

When the firm finally enabled prearranged trading surveillance, it never reviewed the more than 10,000 alerts generated over a two-month period. The firm closed more than 147,000 alerts identifying potentially manipulative trading without conducting any investigation. The firm lacked adequate staffing, and compliance personnel received no written guidance or training on reviewing surveillance alerts.

After implementing a new surveillance system, the firm generated approximately 15.2 million alerts for potentially manipulative trading, closing nearly all without investigation. As of early 2025, over 5.2 million alerts remained unreviewed.

This case highlights the critical importance of not just having surveillance systems, but actually reviewing and acting on the alerts they generate. Manipulative trading harms all market participants by distorting prices and undermining market integrity. Investors should understand that clearing firms play a vital role in detecting and preventing such manipulation.