The Financial Industry Regulatory Authority (FINRA) censured and fined Manhattan Beach Trading Financial Services, Inc. ("MB Trading") of El Segundo, California and fined the firm $125,000 for its failure to implement adequate identity protection measures associated with the firm's direct market access (DMA) platform.
FINRA found that between 2010 and 2011, MB Trading, an online brokerage and trading firm, failed to establish anti-money laundering procedures by not providing a secure system with which to verify customer identity and detect and report suspicious account transactions.
For an online firm that may be subject to hacking or other Internet-related attacks, verification of customer identity and suspicious activity reporting are vital components of electronic security, meaning that MB Trading's failure to implement such measures was, according to FINRA, "significant."
Specifically, FINRA found that during a four-month period in 2010, MB Trading opened accounts for at least four individuals who engaged in a pattern of fraudulent trading by improperly accessing ("hacking into") third party customer accounts located at other online broker dealers and perpetrating a short-sale scheme designed to maximize profits for the infiltrators while generating losses in the victims' accounts.
FINRA also found that MB Trading staff failed to adequately review new customer account applications, resulting in the acceptance of these four individuals, whose address, phone number and social security number verification checks resulted in several red flags wherein multiple identifiers came back as, "unverifiable."
Finally, because MB Trading failed to flag or otherwise report suspicious trading activity, the four individuals were able to infiltrate other accounts without detection until it was too late.
Investing online introduces convenience and an enhanced ability to monitor accounts, yet investing online also introduces unique risks, such as identity theft or fraud. If you have invested with Manhattan Beach Trading Financial Services or another online firm you suspect has failed to implement adequate security measures, and this failure has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.