Herold & Lantern Investments, Inc has agreed to a fine of $125,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

From November 2020 through May 2024 (the relevant period), and following its merger with another FINRA member in 2020, Herold & Lantern acquired certain customer accounts that regularly deposited or sold shares of low-priced securities.

In addition, during the relevant period, the firm effected securities transactions, including transactions in low-priced securities, for customers that were subject to a tri-party agreement between Herold & Lantern, Herold & Lantern’s clearing firm, and another FINRA member.

Revenue generated from low-priced securities transactions represented approximately 4% of Herold & Lantern’s total revenue during the relevant period.

The firm’s AML policies and procedures were not reasonably designed to detect and cause the reporting of suspicious transactions in low-priced securities. While the firm’s AML procedures identified red flags involving low-priced securities, the procedures did not provide reasonable guidance regarding how to investigate red flags involving low-priced securities.

Herold & Lantern also did not reasonably tailor its AML compliance program to address the risks posed by low-priced securities. Specifically, prior to August 2022, the firm’s exception reports concerning low-priced trading activity did not include transactions in customer accounts subject to the firm’s tri-party clearing agreements. And, the firm’s AML compliance program with respect to low-priced securities did not include appropriate risk-based procedures for conducting ongoing customer due diligence.

In practice, the firm did not conduct ongoing or additional due diligence of the accounts that regularly transacted in low-priced securities during the relevant period.

The firm’s exception reports also failed to include sufficient information to identify potential red flags of suspicious activity, such as patterns of account activity over time by the same customer.

As a result, the firm failed to detect and reasonably investigate certain red flags of suspicious transactions.

Therefore, Herold & Lantern violated FINRA Rules 3310(a), 3310(f)(ii) and 2010.

In approximately August 2022, the firm began to include customer accounts subject to its tri-party agreements in its surveillance for suspicious activity in low-priced securities.

Moreover, in or around May 2024, the firm stopped accepting deposits of physical certificates of low-priced securities.

In addition to the $125,000 fine, the firm has agreed to a censure.