A Video, a Tip, and Two Deposits Just Under $10,000
At a small broker-dealer, three things happen in one week. (1) An RR posts a video to a public channel saying 'our growth fund beat the S&P 500 by 9% last year - link in bio,' with no disclosure of fees and no principal approval. (2) A client who is the CFO of a supplier tells the RR, 'we're going to miss earnings badly next quarter'; the RR shorts the supplier's stock in his personal account and tells two friends. (3) A branch receives a $9,600 cash deposit from a customer who deposited $9,700 last month, and who explains he is 'keeping each deposit under $10,000 for tax reasons.' The branch manager asks you what each item requires and how fast.
1. Item (1): classify the video, state the approval standard, and identify the content failures.
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A public video is a retail communication - it reaches more than 25 retail investors within 30 calendar days, so it is not mere correspondence.
Requirements:
- Principal approval before use by a registered principal; the firm must also supervise and keep records of the post.
- Fair and balanced presentation with a sound basis for the claim.
Failures here:
- 'Beat the S&P 500 by 9%' is a performance claim with no time period, no benchmark definition, and no disclosure of fees or expenses - net-of-fee performance would be lower.
- Past performance is not indicative of future results; that caveat is absent.
- 'Link in bio' makes it a distributed advertisement rather than an internal message.
Remedy: pull the post, preserve a copy for the books and records, and route any reposted version through principal review with the benchmark, period, and fee disclosure added.
2. Item (2): what is the violation, who is exposed, and what is the firm's immediate obligation?
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Material nonpublic information plus a duty equals insider trading. Under the misappropriation theory, the CFO breached a duty of confidentiality to his company by disclosing the earnings news, and the RR knew - or had reason to know - the information was confided.
- The RR's short sale violates Section 10(b) and Rule 10b-5.
- Tipping his two friends is a separate violation, and each friend who trades is liable as a tippee.
Firm obligations, in order:
- Freeze - no further trading in the issuer, and consider restricting the RR's other accounts if the friends are customers.
- Escalate immediately to compliance and legal; do not conduct an independent investigation that could tip off the subject.
- Preserve records, communications, and the personal account statements.
- Expect a regulatory inquiry; the firm's own supervisory procedures for handling MNPI will be examined alongside the trade.
Suspected insider trading can also trigger SAR obligations. Compliance must assess whether the transaction meets the applicable reporting conditions and whether an exception applies; insider trading is not categorically excluded from suspicious activity reporting. See the SEC AML source tool, section 8.
3. Item (3): which filing is triggered, which is not, and what is the deadline and the confidentiality rule?
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A Suspicious Activity Report is required; a Currency Transaction Report is not.
- A CTR is triggered by currency transactions exceeding $10,000 in a single business day. Each deposit here is under $10,000 on its own day, so no CTR is due.
- Structuring - deliberately keeping amounts under the reporting threshold - is itself a federal offense, and is reportable activity. The customer has admitted the intent out loud.
Deadlines and conduct:
- File the SAR within 30 calendar days of initial detection of the facts, extendable to 60 calendar days if no suspect is identified.
- Do not tip off the customer. Do not tell him the report was filed, do not close the account in a way that signals it, and do not alter his normal service in a suspicious manner.
- File through the firm's BSA officer; the SAR itself is confidential and is not disclosed even in response to a subpoena without proper authority.
Document the reported 'tax reasons' statement verbatim - it is the strongest evidence of intent in the file.