Cantor Fitzgerald Fined, Kessler Suspended in Microcap Caseby , , and
Firm fined $6 million by Finra, must repay $1.3 million
Kessler, Ludovico suspended and fined for their roles
Cantor Fitzgerald LP, the trading firm run by Howard Lutnick, was fined $6 million over regulatory claims it sold unregistered microcap stocks and lacked an adequate anti-money-laundering program to detect the transactions.
Cantor, which was also ordered to repay $1.3 million in commissions and interest, executed transactions or delivered securities involving billions of shares of the smallest tradeable securities between 2011 and 2012, the Financial Industry Regulatory Authority said Monday in a statement. Jared Kessler, Cantor Fitzgerald’s former head of U.S. equities who stepped down last week, and stock trader Joseph Ludovico were suspended and fined for their roles, Finra said.
“If a broker-dealer is looking to increase its revenues by expanding a high-risk business line, the firm and its supervisors must tailor their supervision to the risks associated with those businesses,” Brad Bennett, Finra’s head of enforcement, said in the statement. “This is especially true when the new business involves the mass liquidation of microcap securities, which presents overwhelming risks of fraud and investor harm.”
In settling the claims, New York-based Cantor Fitzgerald didn’t admit or deny wrongdoing, according to the statement. Karen Laureano-Rikardsen, a spokeswoman for Cantor Fitzgerald, declined to comment.
Kessler resigned from the firm last week to pursue “a significant opportunity,” his lawyer, Ross Intelisano, of Rich, Intelisano & Katz LLP, said by e-mail on Friday. Intelisano declined to comment Monday on Finra’s allegations. An e-mail sent to Ludovico’s LinkedIn account wasn’t immediately returned.
The brokerage industry’s self-regulator said that when Cantor Fitzgerald expanded its microcap business in 2011, it failed to institute a system to adequately ensure whether sales were lawful. Ludovico then sold billions of thinly-traded microcap shares without sufficient oversight, while Kessler didn’t “respond adequately to a number of red flags” about the company’s lack of an adequate supervisory system. He also delegated his supervisory responsibilities to a review group without ensuring their efforts were adequate, Finra said.
Kessler was suspended for three months in a principal capacity and ordered to pay $35,000, while Ludovico was barred in every capacity for two months and fined $25,000.