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Caught In A SAR Trap: Statement On In The Matter Of Pierre Economacos, SEC Commissioner Hester M. Peirce, SEC Commissioner Mark T. Uyeda, Sept. 18, 2023

The Commission’s Order Instituting Proceedings[1] finds that Respondent Pierre Economacos, a registered representative with 34 years of experience as a broker and an unblemished record, caused the Firm with which he is associated to violate Securities Exchange Act Section 17(a) and Exchange Act Rule 17a-8.[2] In essence, the Order faults Respondent for lacking a sufficiently suspicious mind because—in the Order’s telling—certain transactions in a longstanding customer’s account triggered one or more “red flags” in the Firm’s anti-money laundering policies. We disagree that the Respondent acted unreasonably.


More than ten years ago, a long-time friend of the Respondent—identified as “Relative” in the Order, but we will refer to the individual as Riley—introduced Respondent to two “close relative[s].” The Order calls these close relatives the “Customer” and the “Executive”, but we will refer to them as Casey and Emerson, respectively. Riley was never one of Respondent’s customers, but Respondent served as a broker for both Casey and Emerson for ten years—from 2011 to 2021. During that ten-year period, Casey made “several hundred thousand dollars of loans” to Riley’s bank accounts from Casey’s brokerage and margin accounts.

Emerson, a “close family member” of Riley and Casey, was a “senior employee” at a Company that announced it would be acquired. Respondent knew that Emerson worked for the Company, and he learned of the acquisition the day it was announced. Four days before the Company’s announcement, Riley and Casey spoke with the Respondent about a planned $50,000 loan from Casey to Riley. Riley told the Respondent that there was some urgency because the funds were for a real estate transaction and asked Respondent to send the funds to Riley’s brokerage account at a different firm. Casey completed the necessary paperwork to authorize the loan, and the funds were sent to Riley’s brokerage account the next day.

Five days after receiving the loan—the day after Emerson’s Company announced the acquisition—Respondent told his team that Riley would be sending funds “to repay the money that [Casey] had loaned [Riley] from [Casey’s] brokerage and margin accounts.” Over the next seven days, Riley caused $280,000 to be wired to Casey’s accounts at the Firm from various accounts at the other brokerage firm. Specifically, $100,000 came from brokerage accounts held in Riley’s name and $180,000 from two separate brokerage accounts “in the names of two immediate family members” but under Riley’s control. Casey told Respondent to use the $280,000 to pay down Casey’s margin account, which reduced its balance by about 60%. The Order states that these payments were the first that “reduce[d] the loan balance” that Riley owed to Casey.

The Order finds this sequence of events suspicious because “the amount of the incoming wire activity was a sudden and abnormal change for [Casey’s] account, occurred within a short period of time in multiple large, round dollar amounts, and occurred in close proximity to the announcement of the acquisition of the Company where [Emerson] worked, triggering a large increase in the Company’s stock price.” To bolster this conclusion, the Order points to some of the “dozens of scenarios involving potentially suspicious activities” included on the “red flags” list in the Firm’s anti-money laundering policy. Yet the Firm’s anti-money laundering policy also acknowledged that the listed “red flags” were not themselves reportable suspicious activities, but were only “indications that a [c]lient may be seeking to engage in a . . . [t]ransaction for an unlawful purpose.” In other words, the “red flags” are not a checklist of transactions that require filing a suspicious activity report (SAR), but rather are a list of factors to consider when assessing whether a particular transaction or set of transactions reaches the reporting threshold set out in the relevant Treasury regulations.

The Treasury regulation at issue requires brokers to report “any suspicious transaction relevant to a possible violation of law or regulation.”[3] The regulation further explains that a transaction should be reported as suspicious if it involves amounts greater than $5,000 and

(i) Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation;

(ii) Is designed, whether through structuring or other means, to evade any requirements of this chapter or of any other regulations promulgated under the Bank Secrecy Act;

(iii) Has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the broker-dealer knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction; or

(iv) Involves use of the broker-dealer to facilitate criminal activity.[4]

The Order fails to explain adequately how and why a loan, and subsequent repayment, between close family members amounts to suspicious activity under the Treasury rule. That a substantial repayment took the form of round numbers in a relatively short time period after a long period of non-payment is not itself inherently suspicious, especially given the nature of the loan itself. It is not suspicious to us that a close family member would offer loans on generous pay-when-you-are-able terms. Nor is it suspicious that the loan would eventually get repaid. Similarly, it is unclear to us why Respondent should have viewed the facts that the most recent loan went to Riley’s brokerage (as opposed to bank) account, and that the repayments came from Riley’s brokerage accounts, as making the transactions suspect. Riley was not Respondent’s customer, and the Order contains no facts indicating that Respondent knew or should have known anything about Riley’s finances, beyond the facts surrounding Casey’s loans to Riley. Liquidating securities holdings to pay debts is not inherently suspicious, and the Order does not indicate that Respondent had any knowledge of Riley’s securities holdings in accounts at other firms.[5]

The closest the Order comes to casting a shadow of suspicion over the transactions is the assertion that the repayments took place shortly after the announcement of the acquisition of the Company where Emerson worked, which resulted in a substantial increase in the Company’s stock price. In other words, a suspicious mind would find the transactions suspect because Riley’s close family member—Emerson—worked at the Company, and Riley made a substantial loan repayment to another close family member—Casey—shortly after the acquisition announcement. Was Respondent legally obligated to have suspected that Riley’s sudden ability to make substantial repayments to Casey from various brokerage accounts was somehow connected to trading that took place in those accounts at or around the acquisition announcement? Was Respondent legally obligated to have suspected that the repayment transactions were connected to unlawful trading in Riley’s accounts? All the relevant brokerage accounts were at other firms, and the Order recites no facts indicating the Respondent had any knowledge of the trading that took place in those accounts.

Moreover, Respondent’s knowledge of Casey’s pattern of loaning money to a family member was longstanding, which goes directly to a determination of suspiciousness and how well the Respondent knew his customer. Respondent had a “friendly and social relationship” with Riley; Riley introduced him to Casey and Emerson and both subsequently became long-time customers. Respondent’s relationships with the various individuals, and his knowledge of their relationship to each other,[6] are factors to consider when assessing whether various transactions among them are suspicious. To the extent the Order might be read to suggest that the closeness of the family relationship among Riley, Casey, and Emerson enhances the suspicious nature of the transactions, one could also reasonably argue the opposite.

In the end, Respondent’s purported transgression was a failure to report internally transactions that may have tripped one or more red flags listed in the Firm’s policies. By failing to report the red flags, Respondent in turn caused the Firm to fail in its obligation to file a timely SAR, or so the theory goes. This reasoning, of course, presumes that the transactions at issue in fact presented red flags that merited a SAR, a presumption with which, as explained above, we disagree. It also presumes that it is prudent for the Commission to determine after the fact that a particular set of facts required filing a SAR; however, the law leaves to firms’ judgment whether to file a SAR. Hindsight is always 20/20 and evaluating these cases with the benefit of having new information sets an impossibly high standard and could result in the Commission’s review and institution of future cases second-guessing decisions made by registered representatives based on information they knew at the time the transactions occurred. Additionally, we are concerned that this Order may be detrimental to a well-functioning SAR regime. By levying punishment on a registered representative for failing to red-flag a transaction and consequently failing to make an internal report, we are encouraging registered representatives to view all flags as various shades of red that require internal reporting. That, in turn, may prompt a firm’s compliance department to similarly see red in every flag and file unnecessary SARs. Such defensive filing serves no one—it imposes extra costs on firms, and adds unhelpful clutter to the reporting data, making it less useful in the end.

For all these reasons, we respectfully dissent.

[1] In the Matter of Pierre Economacos, Rel. No 34-98418 (Sept. 18, 2023).

[2] See 15 U.S.C. § 78q(a) and 17 C.F.R. § 240.17a-8. Section 17(a) requires registered brokers to make and keep such records as required by Commission rules, and Rule 17a-8, in turn, requires registered brokers to comply with certain reporting, recordkeeping, and record retention requirements set out in regulations adopted by the Department of the Treasury.

[3] 31 C.F.R. § 1023.320(a)(1).

[4] 31 C.F.R. § 1023.320(a)(2)(i)-(iv).

[5] Similarly, we do not find it suspicious that the repayments came both from Riley’s brokerage account and from brokerage accounts held “in the names of two immediate family members” but under Riley’s control. Again, the Order includes no facts indicating that Respondent had any knowledge of Riley’s finances or those of the immediate family members.

[6] Due to the requirements of the Bank Secrecy Act, the Order does not disclose the precise nature of the “close family” relationship among Riley, Casey, and Emerson. The nature of the relationship could be relevant because transactions might be assessed differently based on the relationship, e.g. transactions between spouses might be assessed differently than those between a parent and a child, which might be assessed differently than those between siblings, cousins of varying degrees, in-laws, etc.. This observation does not suggest anything regarding the relationships at issue in this proceeding.

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