The Commission’s Order to Commence Proceedings alleges that Pierre Economacos, a seasoned broker with an impeccable record, caused his associated firm to breach Securities Exchange Act Section 17(a) and Exchange Act Rule 17a-8. Essentially, the Order blames Economacos for not being sufficiently cautious because certain transactions in a long-term customer’s account triggered “red flags” in the firm’s anti-money laundering policies. We disagree with the notion that Economacos acted unreasonably.
Over a decade ago, Economacos was introduced to two close relatives, Casey and Emerson, by a friend named Riley. During the following ten years, Casey loaned substantial amounts of money to Riley from brokerage and margin accounts. Emerson, another close family member, worked at a company that announced an acquisition. Four days before this announcement, Riley and Casey discussed a $50,000 loan from Casey to Riley for a real estate transaction, and the funds were sent to Riley’s brokerage account as requested.
Five days after receiving the loan and following the acquisition announcement, Riley transferred $280,000 to Casey’s accounts at the firm. This payment significantly reduced Casey’s margin account balance. The Order deems this sequence suspicious due to the sudden increase in wire activity in Casey’s account, the use of round dollar amounts, and the proximity to the acquisition announcement, triggering stock price fluctuations.
However, the Order fails to adequately explain why these transactions should be considered suspicious under Treasury regulations. The loan between close family members with generous terms and subsequent repayment does not inherently raise suspicion. Moreover, there is no evidence that Economacos had knowledge of Riley’s financial holdings in other accounts.
The Order’s primary suspicion hinges on the timing of repayments following the acquisition announcement, suggesting a connection to stock trading. Yet, the Order does not establish this connection or Economacos’s awareness of it. Furthermore, Economacos had a longstanding relationship with Casey, which should be considered in assessing the transactions’ legitimacy.
In essence, Economacos’s alleged wrongdoing is his failure to internally report transactions that triggered red flags in the firm’s policies. This presumes that these transactions genuinely warranted a Suspicious Activity Report (SAR), a presumption we dispute. It also sets a precedent where hindsight could unfairly judge registered representatives’ decisions based on the information available at the time. This Order may inadvertently encourage overreporting and clutter in SAR filings, imposing unnecessary costs on firms.
For these reasons, we respectfully disagree with the Order.
By FCCT Editorial Team
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