SEC Targets Three Broker-Dealers Over Deficient Suspicious Activity Reports

Three broker-dealers are facing fines and regulatory scrutiny after the SEC charged them with filing incomplete suspicious activity reports (SARs)—a critical misstep in the fight against financial crime. Webull Financial LLC, Lightspeed Financial Services Group LLC, and Paulson Investment Company, LLC agreed to pay a combined $275,000 in civil penalties to resolve the allegations, the SEC announced today.

The case centers on one of the financial sector’s cornerstone obligations: identifying and reporting suspicious transactions. Broker-dealers are required by law to file SARs that detail any unusual or potentially illicit activity. These reports must tell a complete story, explaining the specifics of the activity and why it raised red flags. For Webull, Lightspeed, and Paulson, that’s where things fell short.

Between 2018 and 2022, the firms submitted SARs that the SEC says were missing essential details. This wasn’t just an oversight, according to Jason Burt, Director of the SEC’s Denver Regional Office. He didn’t mince words, “Suspicious activity reports play a vital role in keeping our markets safe, and the failure of broker-dealers to include necessary information to explain suspicious transactions deprives law enforcement and regulatory agencies of valuable and timely intelligence, undermining the very purpose of the SARs.”

It’s not hard to see why the SEC is taking this so seriously. SARs are like breadcrumbs for investigators—they help law enforcement and regulators follow the trail of illicit funds, whether tied to fraud, money laundering, or more sinister schemes. If those breadcrumbs are sparse or incomplete, the whole system falters.

What Went Wrong—& What Happens Next

The SEC found the firms in violation of Section 17(a) of the Exchange Act and Rule 17a-8, which set standards for SAR filings. While they didn’t admit or deny the charges, each firm agreed to pay a penalty:

• Webull Financial LLC will pay $125,000.
• Lightspeed Financial Services Group LLC will pay $75,000.
• Paulson Investment Company, LLC will also pay $75,000.

Penalties, however, are only part of the story. Webull and Paulson have committed to a review of their anti-money-laundering (AML) programs with compliance consultants, while Lightspeed has already taken steps to shore up its processes.

This cooperative stance appears to have worked in their favor. The SEC acknowledged the firms’ willingness to engage and credited them for remedial measures. It’s a reminder that when regulators come knocking, swift action and cooperation can soften the blow.

Lessons for Compliance Professionals

What can compliance teams take away from this?

1. Detail is Key: A vague SAR doesn’t cut it. Regulators want specifics about what’s suspicious and why.
2. Regular Program Reviews: AML systems need constant tuning to stay effective. Independent audits or consultant reviews can help uncover blind spots.
3. Proactive Cooperation: When mistakes happen, showing regulators that you’re taking them seriously—by cooperating and making changes—can go a long way.

This isn’t just about three firms. It’s about the integrity of financial markets and the tools regulators rely on to keep them clean. SARs are one of those tools, and when they’re mishandled, the consequences ripple far beyond any single broker-dealer.

The SEC’s enforcement actions, backed by FINRA’s involvement, signal a united front against AML lapses. And while the penalties in this case may seem relatively small, the reputational damage and potential scrutiny down the line could loom far larger for the firms involved.

This case may not be the headline-grabber of the year, but it’s a pointed reminder that even routine filings carry weight. And for the firms now out $275,000, it’s a lesson learned the expensive way.

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