← Broker database 2024-10-31
Celadon Financial Group and Paul Mitchell Waldman Fined for Rule 606 Reporting and AML Program Failures
According to FINRA, Celadon Financial Group LLC was censured and fined $195,000 on October 31, 2024. Paul Mitchell Waldman was fined $5,000 and suspended from association in any principal capacity for 45 days.
The firm violated Rule 606(a) of Regulation National Market System by publishing quarterly reports that provided inaccurate information about its handling of customers' orders in NMS securities. When the firm's third-party vendor could not accurately process the firm's trade data, the firm provided historical trade data from prior quarters. The firm published the Rule 606 report without correcting the errors, resulting in customers receiving inaccurate information about the firm's routing of non-directed orders.
The firm and Waldman also failed to establish and maintain a supervisory system reasonably designed to achieve compliance with Rule 606. Waldman's review process involved randomly selecting only five trades per quarter for comparison, which was not reasonably designed to supervise the accuracy and completeness of the firm's disclosures given that the firm effected approximately 10,000 transactions in NMS stocks each month.
Additionally, the firm failed to develop and implement a reasonably designed anti-money laundering (AML) program. The firm expanded its business to facilitate liquidation of low-priced securities and became aware of numerous red flags related to approximately 10 customers who wished to deposit and sell low-priced securities. Despite being aware that several customers were the subject of news reports indicating possible criminal, civil, and regulatory violations, the firm executed over 3,600 transactions in low-priced securities for these customers, totaling approximately $299 million and generating approximately $7.9 million in commissions.
This case demonstrates how firms can fail investors through both inadequate supervision and deficient AML programs. Rule 606 reports are meant to provide transparency about how firms handle customer orders, and inaccurate reports deprive investors of critical information. The AML failures are particularly concerning, as they suggest the firm prioritized commission revenue over proper due diligence. Investors should be aware that firms handling low-priced securities have heightened AML obligations, and failure to meet these obligations can expose customers to association with fraudulent schemes.