Alerts

The Securities and Exchange Commission Brings Its First Enforcement Action for Violation of the USA PATRIOT Act

June 13, 2006

On May 22, 2006, the Securities and Exchange Commission ("SEC") brought its first enforcement action under the USA PATRIOT Act. The USA PATRIOT Act seeks to protect the U.S. financial system from money laundering and terrorist financing by, among other things, requiring broker-dealers to establish and document identity verification procedures for all new accounts. The SEC alleged that Crowell, Weedon & Co., a Los Angeles-based broker-dealer, failed to follow the customer verification procedures in its written customer identification program ("CIP"), and instead relied upon different procedures that were materially weaker than those in its written CIP, which it failed to document. Specifically, the SEC alleged that Crowell, Weedon relied on its registered representatives' indications that they had personal knowledge as to the new customer's identity.