← Broker database 2026-03-03
Herold & Lantern Investments Fined $125,000 for Anti-Money Laundering Program Failures in Low-Priced Securities
According to FINRA, Herold & Lantern Investments, Inc. (CRD #30996) of Melville, New York, was censured and fined $125,000 after FINRA found the firm failed to establish and implement an anti-money laundering (AML) compliance program reasonably designed to detect and cause the reporting of suspicious transactions in low-priced securities.
The firm's AML procedures identified red flags involving low-priced securities, but those same procedures failed to provide reasonable guidance on how to actually investigate those red flags. Recognizing a potential problem is meaningless without a corresponding framework for action, and Herold & Lantern's program fell short at that critical step. In addition, the firm did not reasonably tailor its AML program to address the specific and elevated risks presented by low-priced securities trading. In practice, the firm conducted no ongoing or additional due diligence for accounts that regularly transacted in low-priced securities.
The firm's exception reports also lacked sufficient information to identify potential patterns of suspicious activity, such as changes in account behavior over time or concentrated trading by the same customer in particular securities. Without this historical context, the firm was unable to detect and reasonably investigate red flags that should have triggered further scrutiny and potential Suspicious Activity Report (SAR) filings.
Low-priced securities — commonly called penny stocks — are a well-recognized vehicle for money laundering and market manipulation schemes such as pump-and-dump fraud. Their low per-share prices allow bad actors to move large quantities of shares with relatively small amounts of capital, making them attractive for layering and concealment schemes. Broker-dealers that participate in low-priced securities markets therefore bear a heightened AML responsibility and must have programs specifically designed to address these elevated risks.
Investors should understand that robust AML programs serve not just a regulatory function but a protective one: they help ensure that markets are free from manipulation and that investor capital is not inadvertently used to facilitate fraud. Firms that cut corners on AML compliance may expose customers to heightened risk and regulatory scrutiny.