March 19, 2018

The SEC announced that Electronic Transaction Clearing (ETC), a registered broker-dealer headquartered in Los Angeles, has agreed to settle charges that it illegally placed more than $25 million of customers’ securities at risk in order to fund its own operations. Among other things, the SEC found that ETC violated the Customer Protection Rule, which is intended to safeguard customers’ cash and securities so that they can be promptly returned if a broker-dealer fails. It requires broker-dealers to maintain physical possession or control of customers’ fully paid and excess margin securities. According to the SEC’s order, ETC put customer securities at risk numerous times in 2015. ETC improperly transferred almost $8 million of fully paid securities belonging to cash customers to an account at another clearing firm to meet margin requirements on borrowed funds, and the firm used more than $17 million of securities of two customers to borrow funds without consent. The order also finds that ETC improperly commingled customers’ securities and allowed a customer’s excess margin securities to be loaned out by the other clearing firm. The SEC’s order charged ETC with violating the Securities Exchange Act and Customer Protection Rule as well as other related rules. Without admitting or denying the SEC’s findings, ETC agreed to entry of the order, to pay an $80,000 penalty, to cease and desist from committing or causing any similar violations in the future, and to be censured. ETC cooperated with the SEC’s investigation and has taken remedial steps to prevent future violations. SEC

Tagged in: Financial Institution Fraud, Regulatory Violations, Securities Fraud,