Wedbush Securities Inc. Settles for $350,000 Fine with FINRA Over Unauthorized Wire Transfers

In a significant regulatory settlement, Wedbush Securities Inc. has agreed to pay a fine of $350,000 to the Financial Industry Regulatory Authority (FINRA) following a serious breach involving unauthorized wire transfers. This settlement is part of the ongoing efforts by financial institutions and regulatory bodies to enhance cybersecurity measures and protect client assets.

Contents

01

Background of the Incident

02

Regulatory Violations and Settlement Terms

03

About Wedbush Securities

Background of the Incident

Between January 27, 2021, and February 4, 2021, Wedbush Securities became the target="_blank" kwlink="6384064000816950219725">target of a sophisticated cyber fraud. A hacker, who compromised an email account of a registered representative at a correspondent firm of Wedbush, initiated four fraudulent wire transfer requests. These requests, cumulatively exceeding $6.6 million, were directed from a joint brokerage account to unrelated third parties in foreign countries.

The investigation by FINRA revealed critical lapses in Wedbush Securities due diligence processes. The firm approved the fraudulent requests without adequately investigating several red flags. These included the unusually large and rapidly escalating amounts requested and the lack of any apparent connection between the recipients and the account holders. Furthermore, Wedbush failed to perform standard verification procedures, such as directly contacting the correspondent firm through verified communication channels.

Upon discovering the fraudulent activities, Wedbush Securities, in conjunction with the correspondent firm, acted promptly to reimburse the affected customers for their losses, demonstrating a commitment to client protection.

In response to this incident, in February 2021, Wedbush Securities revised its supervisory procedures. The updated measures include mandatory verification calls to a known contact at correspondent firms for wire transfers above a specified threshold. This step is part of a broader initiative to strengthen cybersecurity and safeguard customer assets against emerging digital threats.

Regulatory Violations and Settlement Terms

The lapse in supervisory diligence resulted in Wedbush Securities violating FINRA Rules 3110 (Supervision) and 2010 (Standards of Commercial Honor and Principles of Trade). Alongside the monetary fine, the firm has accepted a censure and agreed to an undertaking. This undertaking requires a senior management member, who is a registered principal, to certify that Wedbush has addressed the identified issues and implemented a supervisory system aligned with Rule 3110.

Wedbush Securities reaffirms its dedication to regulatory compliance and the highest standards of client security. The firms proactive response and enhanced measures reflect its commitment to maintaining trust and integrity in its operations.

About Wedbush Securities

Wedbush Securities is a leading financial services firm offering a wide range of services, including private client services, wealth management, and investment banking. With a deep commitment to client service and regulatory compliance, Wedbush continues to be at the forefront of providing secure and innovative financial solutions.