Offshore

Bank Leumi Reaches US Settlement

Tom Burroughes, Group Editor, October 20, 2016

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This publication brings latest news around regulatory and law enforcement actions affecting wealth managers in, or dealing with, the US.

Israeli-based Bank Leumi has agreed to pay $1.6 million and admit wrongdoing to settle charges in the US that it provided investment advice and induced securities transactions for US customers for more than a decade without registering as an investment advisor or broker-dealer.

The action, announced by the Securities and Exchange Commission earlier this week, stem from how the bank had continued to manage money for US clients three years after it had moved to exit from the business amid a crackdown by the US on foreign accounts.

The statement said it found Bank Leumi maintained several hundred securities accounts that were beneficially owned by US customers and managed more than $500 million in securities assets for US customers.  To manage and mitigate the risk of breaching US laws, Bank Leumi began exiting the US cross-border business in 2008.

“But despite these efforts, approximately 100 US customer securities accounts remained open with the bank three years later, and bank employees continued to have contact with US customers,” the SEC said in a statement. 

“The broker-dealer and investment adviser registration provisions provide core protections to investors,” Scott Friestad, associate director of the SEC’s Division of Enforcement, was quoted as saying. “Bank Leumi’s efforts to come into compliance with these laws took years, during which time the bank continued to profit from its unlawful cross-border business,” he said.  

The SEC’s order finds that Bank Leumi made $3.3727 million in profits from its US cross-border business.  The bank disgorged $3.307 million of those profits in a deferred prosecution agreement with the US Justice Department in December 2014.  Bank Leumi must, the SEC said, disgorge the remaining $65,700 in its settlement with the SEC plus $8.713 million in interest and a $1.517 million penalty.

 

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