Chapin Davis, Inc

Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED TO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT SOLD APPROXIMATELY $24.5 MILLION IN STRUCTURED NOTES AND FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) INSURED STRUCTURED CERTIFICATES OF DEPOSIT TO RETAIL CUSTOMERS, WHEN IN CONNECTION WITH THE SALE OF THE STRUCTURED PRODUCTS, THE FIRM'S SUPERVISORY SYSTEM AND WRITTEN SUPERVISORY PROCEDURES (WSPS) WERE INADEQUATE. THE FINDINGS STATED THAT THE FIRM'S SUPERVISORY SYSTEM AND WSPS WERE INADEQUATE, IN THAT THERE WAS NO SYSTEM OR WSPS FOR EVALUATING AND CONDUCTING DUE DILIGENCE ON THE PRODUCTS, INCLUDING DETERMINING RISKS AND SUITABILITY ISSUES, AS APPLICABLE, AND APPROVING THE PRODUCTS. THE FIRM OFFERED LIMITED TRAINING ON THE PRODUCTS. THE WSPS INCLUDED GENERAL PROVISIONS ON SUITABILITY REQUIREMENTS, BUT DID NOT SPECIFICALLY ADDRESS THE PRODUCTS OR PROVIDE GUIDANCE OR RESTRICTIONS UNIQUE TO THE PRODUCTS, INCLUDING ASSESSMENT OR CONSIDERATION OF CUSTOMER-SPECIFIC SUITABILITY, AS APPLICABLE. FINALLY, THE FIRM DID NOT SUFFICIENTLY REVIEW TRANSACTIONS IN THE PRODUCTS, INCLUDING MONITORING OF ACCOUNTS FOR OVER CONCENTRATION OF THE PRODUCTS. Status: Final Sanction Detail: THE FIRM WAS CENSURED AND FINED $35,000. Summary: SUPERVISORY PROCEDURES WERE IMPLEMENTED AND CONTINUE TO REQUIRE RIGOROUS OVERSIGHT OF THE CLIENT SUITABILITY, REGISTER REPRESENTATIVE KNOWLEDGE AND ONGOING TRAINING AS WELL AS, PRODUCT DUE DILIGENCE PRIOR TO OFFERING OUT TO CLIENTS.

Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED TO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TO IMPLEMENT ITS WRITTEN CUSTOMER IDENTIFICATION PROGRAM (CIP). THE FINDINGS STATED THAT THE FIRM'S PROCEDURES PERTAINING TO ITS CIP REQUIRED THE COMPLETION OF A NEW ACCOUNT FORM, AND THE COLLECTION OF SUPPLEMENTAL INFORMATION AND DOCUMENTATION, FOR EACH ACCOUNT OPENED. THE FIRM'S PROCEDURES FURTHER REQUIRED THE VERIFICATION OF THE ACCURACY OF INFORMATION AND DOCUMENTATION PROVIDED AT ACCOUNT OPENING SUFFICIENT TO FORM A REASONABLE BELIEF THAT THE TRUE IDENTITY OF THE CUSTOMER IS KNOWN. HOWEVER, THE FIRM FAILED TO FULLY IMPLEMENT THESE PROCEDURES AND, AS A RESULT, FAILED TO VERIFY THE IDENTITY OF EACH CUSTOMER TO THE EXTENT REASONABLE AND PRACTICABLE. THE FINDINGS ALSO STATED THAT THE FIRM FAILED TO IMPLEMENT ITS WRITTEN AML POLICIES AND PROCEDURES RELATING TO THE DETECTION AND REPORTING OF SUSPICIOUS TRANSACTIONS. INCONSISTENT WITH ITS OWN PROCEDURES, THE FIRM FAILED TO MONITOR ACCOUNT ACTIVITY FOR UNUSUAL SIZE, VOLUME, PATTERN, OR TYPE OF TRANSACTIONS AND OTHER RED FLAGS. THE FIRM OFTEN FAILED TO REVIEW THE DAILY EXCEPTION REPORTS PROVIDED BY ITS CLEARING FIRM AND DAILY DEPOSIT AND WITHDRAWAL ACTIVITY, OR FAILED TO REVIEW THEM UNTIL MONTHS AFTER THE POTENTIALLY SUSPICIOUS TRANSACTIONS OCCURRED. AS A RESULT, THE FIRM FAILED TO DETECT AND INVESTIGATE CERTAIN CUSTOMER ACTIVITY THAT RAISED RED FLAGS OF POTENTIALLY SUSPICIOUS ACTIVITY. Status: Final Sanction Detail: $35,000 WAS PAID Summary: CHAPIN DAVIS, IN ACCORDANCE WITH INDUSTRY REGULATIONS, HAS IN PLACE AN EXECUTED ANTI-MONEY LAUNDERING PROGRAM (AML) AND CUSTOMER IDENTIFICATION PROGRAM (CIP) WITHIN THE DEVELOPMENT OF INTERNAL POLICIES AND PROCEDURES. THE FIRM HAS DESIGNATED AN AML COMPLIANCE OFFICER, CONDUCTED BOTH ANNUAL TRAINING FOR ALL REGISTERED ASSOCIATES AND ANNUAL INDEPENDENT AUDITS. THE FIRM'S AML POLICIES AND PROCEDURES MEET THE GUIDELINES AS DEFINED BY RULE 3310(A) THAT CAN REASONABLY DETECT AND CAUSE THE REPORTING OF SUSPICIOUS TRANSACTIONS REQUIRED UNDER TITLE 31 U.S. CODE 5813(G) FOR ALL CUSTOMER ACCOUNTS AT THE FIRM. FOR THE ACCOUNTS IN QUESTION, NEW ACCOUNT DOCUMENTS WERE COMPLETED WITH ALL INFORMATION AS REQUIRED BY RULE 2090, KNOW YOUR CUSTOMER. IN ADDITION, WITHIN TWO DAYS, THE FIRM ALSO RECEIVED PASSPORT INFORMATION FOR ALL BENEFICIAL OWNERS. COPIES OF THE PASSPORT WERE ADDED TO THE CUSTOMER NEW ACCOUNT DOCUMENTS AND UPDATED THROUGH ACCOUNT MAINTENANCE. OFAC SEARCHES WERE GENERATED FOR EACH BENEFICIAL OWNER RESULTING IN NO HITS OR MATCHES. OFAC REPORTS WERE FILED WITH CUSTOMER NEW ACCOUNT DOCUMENTS. THE DOCUMENTED PROCEDURES FOR THE FIRM'S CUSTOMER IDENTIFICATION PROGRAM WERE FOLLOWED TO VERIFY EACH BENEFICIAL OWNER'S IDENTITY. EACH OF THE INDIVIDUAL'S INFORMATION WAS SUBMITTED VIA EQUIFAX ON THE SAME DAY OF THE NEW ACCOUNT OPENING. EACH BENEFICIAL OWNER'S CIP REPORT WAS VERIFIED AND VALIDATED USING THEIR RESPECTIVE NON-EXPIRED PASSPORT. ADDITIONALLY, NO RED FLAGS EXISTED FOR THESE CLIENTS OF ANY SORT OR ANY INDICATION THE CUSTOMERS WERE ENGAGING OR HAD ENGAGED IN SUSPICIOUS ACTIVITY. ALL BENEFICIAL OWNERS PROVIDED ALL REQUIRED DOCUMENTATION, DID NOT ATTEMPT TO DECEIVE OR PROVIDE FRAUDULENT GOVERNMENT ISSUED DOCUMENTS. THERE WAS NO NEED TO LABEL THESE CLIENTS AS HIGH RISK OR NECESSITATE THE FILING OF A SUSPICIOUS ACTIVITY REPORT. THE FIRM DID MONITOR ALL CLIENT ACCOUNTS FOR ACTIVITY RELATED TO SIZE, VOLUME, PATTERN AND OTHER RED FLAGS. THE FIRM REVIEW REPORTS IN A MANNER CONSISTENT WITH REGULATORY REQUIREMENTS AND DID NOT DETECT ANY SUSPICIOUS ACTIVITY WITHIN THE ACCOUNTS IDENTIFIED. THERE WAS NO ACTIVITY THAT ROSE TO THE LEVEL OF NEEDING TO FILE A SUSPICIOUS ACTIVITY REPORT.