SEC Files First Enforcement Action Under Patriot Act

by Glen Shapiro, LawAndTax-News.com, New York

24 May 2006

In its first-ever enforcement action under the USA PATRIOT Act, the Securities and Exchange Commission announced on Monday that it has sanctioned Los Angeles broker-dealer Crowell, Weedon and Co. for failing properly to document its customer identification program.

The USA PATRIOT Act among other provisions, requires broker-dealers to implement and document identity verification procedures for all new accounts.

According to the SEC, from October 2003 to at least late April 2004, Crowell failed to document its actual customer identity verification procedures in its written customer identification program (CIP).

During this period, the firm opened approximately 2,900 new accounts for customers. In verifying the identities of those customers, Crowell, Weedon simply relied on its registered representatives' attestations that they had personal knowledge of the customers opening the new accounts. This practice was not documented in the firm's written CIP.

Rather, Crowell, Weedon and Co.'s written CIP specified that it would verify the identity of each new customer using certain non-documentary and documentary procedures, such as a public database search and reviewing a government issued identification.

By failing accurately to document its CIP, the firm violated the record-keeping and record retention requirements under the CIP rule.

Randall R. Lee, Regional Director of the SEC's Pacific Regional Office, explained that:

"The USA PATRIOT Act's customer identification program requirement is a significant tool for deterring money laundering and other activities that could be used to benefit terrorist groups. Enforcement of this requirement is a significant part of the Commission's overall mission, and the Commission is committed to doing its part to protect our homeland."

Without admitting or denying any of the findings, Crowell, Weedon and Co. consented to the issuance of an order that it cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8 thereunder.

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