WallachBeth Capital LLC has agreed to pay a fine of $100,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

Between January 2021 and April 2024 (the relevant period), WallachBeth’s written supervisory procedures prohibited certain potentially manipulative transactions and practices such as prearranged trading and wash transactions.

The procedures did not, however, describe how firm employees should monitor for other forms of problematic trading, including potentially manipulative intraday trading designed to affect the price of low-priced securities. The procedures also failed to explain how firm employees should conduct and document trade blotter reviews, reviews of intraday trading activity, and periodic reviews of certain exception reports.

Specifically, the procedures did not describe what an employee should evaluate when conducting such reviews and when potentially manipulative trading activity should be escalated for additional investigation.

Until October 2023, to detect potentially manipulative trading, WallachBeth relied on intraday and weekly trading reviews conducted via checklists but did not provide written guidance to the reviewers explaining how to identify and assess potentially manipulative trading. It also relied on a manual review of the daily trade blotter. This was unreasonable given the high volume and relative complexity of trading by the firm’s day trading customers, who frequently placed hundreds of trades daily.

On many occasions, the trading in a security was on both sides of the market. It was also unreasonable given that the blotter aggregated orders such that, if a customer placed multiple orders in the same security, the blotter would only reflect the total number of shares and dollar amount for a particular security rather than providing order-level detail.

As a result, the firm could not reasonably surveil intraday trading for potential manipulation in low-priced securities by the firm’s day trading customers. Neither the firm’s intraday reviews nor manual review of the daily trade blotter was capable of identifying potentially manipulative patterns of trading across accounts or across multiple days.

WallachBeth also relied on periodic reviews of several exception reports relating to low-priced securities issued by the clearing firm for the day trading customers to detect potentially manipulative trading. These reports were not, however, designed to identify potentially manipulative activity such as patterns of intraday buying and selling activity, patterns of trading across accounts or multiple days, and other indicia of common forms of market manipulation. As a result, the firm could not rely on these reports to detect potential manipulation in intraday trading by the firm’s day trading customers.

During the relevant period, WallachBeth failed to reasonably detect and investigate potential manipulation of multiple low-priced securities by one of its day trading customers. This included numerous instances when the day trading customer created price movement in a low-priced security through rapid buying activity, typically through multiple small share orders at escalating prices in a short intraday period, and then quickly reversed, selling the same security at the more favorable prices created by the customer’s buying activity. The firm did not investigate this activity to ascertain whether the customer was attempting to induce other market participants to trade at artificially high prices.

In October 2023, the firm began using an automated trade surveillance tool to monitor for potentially manipulative trading. In April 2024, the firm updated its written supervisory procedures to explain how firm supervisors should conduct and document their reviews of alerts generated by the new tool.

By failing to establish, maintain, and enforce a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with rules prohibiting manipulative trading activity, WallachBeth violated FINRA Rules 3110 and 2010.

The firm has agreed to a censure in addition to the $100,000 fine.

WallachBeth has been a FINRA member since November 2008. It has approximately 50 registered representatives in three branch offices. It is a full-service brokerage firm headquartered in Boca Raton, Florida.