E*Trade Fined for Compliance Misstep

E*Trade Financial (ETFC) will pay $1 million to settle charges that it failed to comply with certain antimoney laundering rules.

Under a Securities and Exchange Commission order, E*Trade allegedly failed to comply with USA Patriot Act and SEC rules that require broker-dealers to verify the identities of their customers and document their procedures for doing so.

E*Trade agreed to settle the SEC enforcement action without admitting or denying the allegations.

During a 20-month period from October 2003 to June 2005, E*Trade specifically failed to follow its own verification procedures for 65,000 "secondary accountholders" in newly opened joint accounts, the SEC says.

The SEC further says that the online brokerage firm's compliance structure showed a "lack of cohesive organizational structure, lack of adequate management oversight, and miscommunications among personnel in several E*Trade business groups."

E*Trade, along with many other financial firms, implemented procedures in 2003 related to the automated surveillance of customer identifications under the USA Patriot Act, which stemmed from the terrorist attacks of September 11, 2001.

E*Trade says it found problems related to automated processes that verified secondary accountholders of new joint accounts and reported it to the SEC and other regulators in 2005. The company says no account openings were erroneously opened as the result of the problem.

As part of the settlement, the company has submitted the missing information to third-party vendors for verification, the SEC says.

"E*Trade fully supports the SEC in its efforts to curb the exploitation of the financial services industry by those who would seek to do harm to others," the company said in an e-mailed statement.

The online brokerage firm, another victim of the mortgage fallout and credit crunch, posted a wider-than-expected second-quarter loss, as loan delinquencies rose and it increased its provision for loan losses.

Shares of E*Trade which were up when the market opened, were recently falling 2% on news of the settlement.

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