SEC Cites Crowell Weedon
Securities regulators on Monday sanctioned Los Angeles-based investment firm Crowell, Weedon & Co., saying it violated customer identification requirements mandated by the Patriot Act.
The Securities and Exchange Commission said the action was its first enforcement of rules designed to protect the financial system from money laundering and terrorism, although no such crimes were alleged in this case.
Instead, the company was cited for failing to follow federal rules for confirming the identities of new customers from October 2003 to at least April 2004.
“It’s an important case because this is a new law and brokerage firms have to realize that they need to comply to the letter of the rules,” said Kelly C. Bowers, senior assistant regional director of the SEC. “The commission is saying that Crowell failed to keep the proper books and records -- but is not saying that Crowell or any of its clients were in any way engaged in terrorism.”
Crowell Weedon, which opened its doors in 1932, neither admitted nor denied that it broke any rules. The company agreed to comply with the rules, and no fine was levied.
“Crowell, Weedon & Co. is pleased to have resolved this matter,” the firm said in a statement. “There was no allegation that the firm’s facilities were used for money laundering.”
The company added that as a result of the SEC’s probe, Crowell Weedon “enhanced its account opening and anti-money-laundering procedures.”
The sanction underlines the interest of SEC Chairman Christopher Cox in national security matters. Cox recently disclosed plans for SEC commissioners to begin getting regular briefings from senior intelligence officers. A Republican, he served as chairman of the Committee on Homeland Security when he was in the House. Unlike most of his SEC predecessors, Cox has a background in politics rather than investment.
“The USA Patriot Act imposes important obligations on broker-dealers to protect against money laundering and terrorist financing,” Linda Chatman Thomsen, the SEC’s director of enforcement, said in a statement. “This action demonstrates the commission’s commitment to enforce laws within its jurisdiction that are designed to prevent and detect money laundering and related activities.”
The Patriot Act, passed after the terrorist attacks of Sept. 11, 2001, contains various provisions to strengthen the government’s investigative powers and enhance the ability of authorities to find threats.
To implement a part of the law, the SEC imposed a rule that requires investment brokers to document their methods of verifying the identity of new customers and then to follow through on such plans.
According to the SEC, Crowell’s verification program was supposed to confirm customers’ identities through such procedures as searching public databases and reviewing official documents such as driver’s licenses and passports.
But rather than following those procedures, Crowell instead relied on the word of its brokers that they could personally vouch that the new customers were legitimate, according to the SEC. The company established about 2,900 accounts during the period cited by regulators.
The SEC does not assess the effectiveness of a company’s customer identification program but does monitor whether a company maintains paperwork consistent with its program.
The customer identification requirements are “a significant tool for deterring money laundering and other activities that could be used to benefit terrorist groups,” said Randall R. Lee, regional director of the SEC’s Regional Pacific Office. “The commission is doing its part to protect our homeland.”
Crowell Weedon, a full-service stockbrokerage and money management firm, bills itself as the largest independent investment firm in the western U.S.
