Southern Trust Securities
Background Of Southern Trust Securities (CRD No. 103781)
STS has been a member firm since June 2000. STS conducts a general securities business. The firm’s
main office is located in Miami, Florida, and it has approximately 20 registered representatives
located in two branch offices.
Escobio entered the securities industry in September 1978. She was associated with several FINRA
members. Most recently, from May 2000 through September 2020, Escobio was associated with STS.
Escobio served as STS’ Chief Compliance Officer (CCO) and Anti-Money Laundering Compliance
Officer (AMLCO) from 2002 through September 2020, as well as the firm’s president from 2014
through September 2020. On September 15, 2020, STS filed a Form U5 disclosing Escobio’s
retirement and termination from the firm. Although Escobio is not currently associated with a FINRA
member, FINRA retains jurisdiction over her pursuant to Article V, Section 4 of FINRA’s By-Laws.
Respondents do not have any relevant disciplinary history.
Activity(s) Reported – Southern Trust Securities
A. Respondents did not develop and implement a reasonably designed AML program.
FINRA Rule 3310 requires member firms to “develop and implement a written anti-money
laundering program reasonably designed to achieve and monitor … compliance with the requirements
of the Bank Secrecy Act (31 U.S.C. 5311, et seq.), and the implementing regulations promulgated
thereunder by the Department of the Treasury.” Among other AML program requirements is the
mandate set forth in FINRA Rule 3310(a) that firms “[e]stablish and implement policies and
procedures that can be reasonably expected to detect and cause the reporting of transactions required
under [the Bank Secrecy Act] and the implementing regulations thereunder.” Broker-dealers are
required to report suspicious activity pursuant to 31 C.F.R. 1023.320. Additionally, FINRA Rule
3310(b) requires that member firms “[e]stablish and implement policies, procedures, and internal
controls reasonably designed to achieve compliance with the Bank Secrecy Act and the implementing
regulations thereunder.” A violation of FINRA Rule 3310 also constitutes a violation of FINRA Rule
2010, which requires member firms and their associated persons to “observe high standards of
commercial honor and just and equitable principles of trade.”
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In April 2002, FINRA issued Notice to Members (NTM) 02-21, which reminded broker-dealers to
monitor for and report potentially suspicious transactions. NTM 02-21 advised that, “[t]o be effective,
[a firm’s AML program] must reflect the firm’s business model and customer base.” NTM 02-21
further advised broker-dealers that their AML procedures must address a number of areas, including
monitoring “trading and the flow of money into and out of … account[s].” NTM 02-21 also advised broker-dealers “to look for signs of suspicious activity that suggest money laundering” — or, “red
flags” — and if they detect “red flags,” to “perform additional due diligence.” In August 2002, FINRA
issued NTM 02-47, which described the suspicious activity reporting rule promulgated by the
Department of the Treasury for the securities industry. NTM 02-47 further advised broker-dealers of
their duty to file a SAR for any transaction raising suspicions of illegal activity occurring after
December 30, 2002.1
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1) STS’ written AML procedures were not reasonable.
Between July 23, 2015, and June 4, 2018, STS’ written AML procedures were not reasonably
designed in light of the firm’s business model. In that period, more than 20% of STS’s customer base
came from jurisdictions considered to present heightened AML risks. The firm’s procedures did not
address the specific AML risks arising from servicing those customers. Although Respondents
permitted customers to wire funds into and out of their accounts, including third-party wires, the
firm’s procedures offered no specific steps or required actions to take during the review process
concerning incoming wires. STS’ written AML procedures identified a number of potential “red
flags” indicative of suspicious activity. However, those procedures did not specify how the firm
would monitor, detect, and investigate those “red flags.” The procedures also did not list reports or
documents that the firm intended to rely upon, the systems by which it would conduct reviews, the
frequency of any reviews, and how STS would document each.
2) Respondents did not implement a reasonable system to identify and respond to red
flags of suspicious activity
Between July 23, 2015, and June 4, 2018, Respondents failed to implement a system reasonably
tailored to the firm’s business that could reasonably have been expected to detect and cause the
reporting of potentially suspicious activity arising from third-party wire transactions. Respondents
approved third-party wire transfers based on brief descriptions regarding the purpose of the wires
provided by customers and neither investigated nor obtained documentation concerning the source or
business purposes of the wires until STS’ clearing firm inquired. The firm did not use any exception
reports in its review of wire transfers.
Respondents did not timely detect, investigate, and follow-up on red flags of suspicious activity
arising from certain third-party wire transfers, as described in more detail below.
a. Respondents did not identify red flags in the account of Customer AA.
Customer AA was a British Virgin Islands corporation whose beneficial owners, a husband (AA1)
and wife (AA2), were domiciled in Venezuela. Customer AA’s new account forms reflected AA1 and
AA2 were self-employed, dealing in real estate investments. In May 2015, when Customer AA
opened an account at STS, the Respondents were aware of news regarding allegations of AAP s
criminal activity in Venezuela. The Respondents had reason to know that AA1 served as a manager
for a Venezuela state-owned company, qualifying him as a politically exposed person. The new
account forms described the purpose of Customer AA’s account as a “commercial account which
invests funds derived from business activities in dollar denominated investment products.” The
account was specifically opened for “investment purposes.”
Despite its stated purpose, within the first 18 months after opening, Customer AA’s account received
five third-party wire deposits totaling over $2.5 million. These third-party wire transfers, and the
circumstances surrounding them, triggered several red flags specified in the firm’s AML procedures.
These red flags included: wires from high-risk jurisdictions, reluctance to provide information, and
payments without any apparent connection with the customer. Respondents did not ask for and did
not obtain documentation to verify the facts and circumstances surrounding the source of funds for
the third-party wires to the account and the business purpose of the wires until STS’ clearing firm
inquired about the activity. Not until then did the Respondents try to obtain additional information
from the customer. Customer AA, in some instances, was not cooperative in providing the requested
documents, and in other instances the documents and additional information provided from the
customer raised further red flags, which Respondents failed to recognize. In January 2017, STS’
clearing firm notified Respondents of its intent to terminate Customer AA’s account after observing
several instances of suspicious activity.
b. Respondents did not identify red flags in the account of Customer BB.
In March 2016, STS opened an account for Customer BB, an FFI with an offshore banking license
issued by the Commonwealth of Dominica. Customer BB’s president and CEO resided in Venezuela.
Customer BB’s new account forms stated that the account intended to invest frequently and did not
foresee any incoming or outgoing third-party wire activity.
Despite STS anticipating no third-party money movements, Customer BB received third-party wires
and Customer BB’s president requested check writing privileges to remit payment to third parties.
Incoming third-party wires raised red flags indicative of suspicious activity, including: wire activity
that was unexplained and unusual, incoming wires from a jurisdiction that presented enhanced risks
of money laundering, and an incoming wire from a company that was linked to criminal activity. At
the time of the wires, Respondents did not ask for, and did not obtain, documentation to verify the
facts and circumstances surrounding the source of funds for the third-party wires to the account and
the business purpose of the wires. Only after STS’ clearing firm inquired about the activity did the
Respondents attempt to obtain additional information from the customer. Customer BB provided
inconsistent information about its business relationships in response to these inquiries, raising
additional red flags that Respondents failed to recognize.
As a result of the foregoing conduct, Respondents violated FINRA Rules 3310(a) and 2010.
B. Respondents did not conduct periodic reviews and enhanced due diligence of a
correspondent account for an FFI
FINRA Rule 3310(b) requires a member firm to establish and implement policies and procedures
and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act and
implementing regulations, including 31 C.F.R. §1010.610.
Under 31 C.F.R. §1010.610(a), FINRA member firms are required to apply risk based procedures and
controls to each correspondent account for FFIs reasonably designed to detect and report known or
suspected money laundering, including a periodic review of account activity sufficient to determine
consistency with information obtained about the type, purpose, and anticipated activity of the
account.
Additionally, under 31 C.F.R. §1010.610(b), FINRA member firms are required to conduct enhanced
due diligence of correspondent accounts for certain foreign banks, including: (i) monitoring
transactions to, from, or through the correspondent account in a manner reasonably designed to detect
money laundering and suspicious activity; and (ii) determining whether the foreign bank in turn
maintains correspondent accounts for other foreign banks that use the established account and, if so,
take reasonable steps to assess and mitigate AML risks associated with the foreign bank’s
correspondent accounts.
During the period of March 2016 to June 2018, Customer BB’s account at STS was a correspondent
account of an FFI. During this period, Respondents failed to conduct periodic reviews of Customer
BB’s account as required. Respondents also failed to document enhanced due diligence of Customer
BB’s account. Customer BB’s account was subject to enhanced due diligence requirements under
C.F.R. §1010.610(b), because Customer BB was a foreign bank operating under an offshore banking
license.
As a result of the foregoing conduct, Respondents violated FINRA Rules 3310(b) and 2010.
C. Respondents did not provide reasonable AML training.
FINRA Rule 3310(e) requires firms to “provide ongoing training for appropriate personnel.”
From July 23, 2015, through June 4, 2018, the firm’s written procedures designated Escobio as the
individual responsible for providing AML training to STS personnel. The Respondents provided
limited annual AML training, primarily consisting of Escobio making a presentation for a small
segment of the firm’s annual compliance meeting. The Respondents failed to provide reasonable
additional AML training to STS personnel responsible for compliance with AML review
responsibilities, including Escobio herself, and failed to provide reasonable guidance allowing those
individuals to fulfill their roles. Further, the Respondents made no effort to tailor the limited AML
training to the firm’s risks and customer base, nor did they reasonably train STS compliance staff
regarding the execution of their AML duties.
As a result of the foregoing conduct, Respondents violated FINRA Rules 3310(e) and 2010.
D. Respondents did not reasonably supervise a terminated individual’s firm email address and
safeguard customer records and information.
FINRA Rule 3110(a) requires members to “establish and maintain a system to supervise the activities
of each associated person that is reasonably designed to achieve compliance with applicable securities
laws and regulations, and with applicable FINRA rules.” FINRA Rule 3110(b) requires each member
firm to “establish, maintain, and enforce written procedures to supervise the types of business in
which it engages and the activities of its associated persons that are reasonably designed to achieve
compliance with applicable securities laws and regulations, and with the applicable FINRA rules.”
FINRA Rule 3110(b)(4) requires, among other items, that firms have written procedures for the
review of incoming and outgoing written (including electronic) correspondence, and that such
reviews be conducted by a registered principal and evidenced in writing.
Rule 30(a) of Regulation S-P (17 C.F.R. § 248.30(a)) requires broker-dealers to, among other things,
“adopt written policies and procedures that address administrative, technical, and physical safeguards
for the protection of customer records and information.” These written policies and procedures must
be reasonably designed to: (a) insure the security and confidentiality of customer records and
information; (b) protect against any anticipated threats or hazards to the security or integrity of
customer records and information; and (c) protect against unauthorized access to or use of customer
records or information that could result in substantial harm or inconvenience to any customer. A registered representative who causes his or her broker-dealer to violate Regulation S-P violates
FINRA Rule 2010, which requires member firms and their associated persons to observe high
standards of commercial honor and just and equitable principles of trade.
From July 2017 through June 2018, STS, through Escobio, failed to establish, maintain, and enforce a
supervisory system, including written supervisory procedures, reasonably designed to prevent a
terminated representative from continuing to access STS email, which contained customer records. In
July 2017, RR1, a statutorily disqualified individual and a founding member of the firm was
terminated by STS. Despite his termination, Escobio decided to keep RR1’s STS email address active
for nearly a year, until June 2018. During this time, Escobio assumed responsibility of reviewing all
incoming and outgoing communications from RR1’s STS email address on a daily basis. However,
Escobio did not document any written procedures on how such reviews were going to be conducted
or documented. Further, STS did not have any written policies and procedures regarding email access
of terminated representatives.
From July 2017 until June 2018, Escobio failed to conduct daily reviews of incoming and outgoing
communications to and from RR1’s STS email address and failed to document any such reviews. The
Respondents ignored several red flags that demonstrated RR1 continued to access his STS email
address, which contained STS customers’ nonpublic personal information. These red flags included
outgoing email communications from RR1’s STS email address, as well as the creation of an autoforwarding email rule established in February 2018 where all emails to RR1’s STS email address
were automatically blind carbon copied to his personal non-STS email address. Further, during this
time Escobio became aware that RR1 continued to access his STS email address from his personal
mobile phone and failed to prevent further access.
As a result of the foregoing conduct, STS violated Rule 30 of Regulation S-P and FINRA Rule 2010.
Escobio caused STS to violate Rule 30 of Regulation S-P, and by virtue of the foregoing, Escobio
violated FINRA Rule 2010. Further, Respondents’ email supervision failures violated FINRA Rules
3110 and 2010.
E. Escobio negligently misrepresented QIB status to corporate bond dealers in purchasing
restricted securities
FINRA Rule 2010 requires that a “member, in the conduct of its business, shall observe high
standards of commercial honor and just and equitable principles of trade.”
On two occasions from July 2015 to July 2017, Escobio negligently misrepresented to corporate bond
dealers regarding the firm’s and its customer’s status as a QIB in obtaining restricted bond allocations
made pursuant to Rule 144A (144A Securities).
On one occasion, Escobio negligently misrepresented on a QIB form that STS qualified as a QIB.
This representation was inaccurate. STS was not a QIB, and therefore ineligible to purchase 144A
Securities on that basis. On another occasion, Escobio negligently misrepresented on a QIB form that
STS was a dealer, acting in a riskless principal transaction, on behalf of a QIB. Her representation
was inaccurate because STS intended to purchase (and did purchase) 144A Securities from the
corporate bond dealer, on behalf of a non-QIB customer. Escobio’s negligent misrepresentations were
made as a result of her misunderstanding of the qualifications for QIB status. By making inaccurate
statements to the corporate bond dealers, Escobio failed to observe high standards of commercial
honor and just and equitable principals of trade in violation of Rule 2010.
By virtue of the foregoing, Escobio violated FINRA Rule 2010
Penalties And Sanctions
A censure, and • a fine of $55,000.
Escobio also consents to the imposition of the following sanctions:
• A six-month suspension from association with any FINRA member firm in any capacity.
Escobio has submitted a sworn financial statement and demonstrated an inability to pay. In light of
the financial status of Escobio, no monetary sanctions have been imposed.
STS agrees to pay the monetary sanction upon notice that this AWC has been accepted and that such
payments are due and payable. STS has submitted an Election of Payment form showing the method
by which they propose to pay the fine imposed.
STS specifically and voluntarily waives any right to claim an inability to pay, now or at any time
hereafter, the monetary sanctions imposed in this matter.
Recent Activity(s)Of The Individual/Firm
From July 23, 2015, through June 4, 2018, the Respondents failed to develop and implement an antimoney laundering (AML) program that was reasonably designed to achieve and monitor the firm’s compliance with the Bank Secrecy Act and the implementing regulations thereunder. In particular, the
Respondents did not establish and implement policies and procedures tailored to the firm’s business,
which could be reasonably expected to detect and cause the reporting of suspicious activity arising
from wire transfers to customer accounts. Additionally, from July 23, 2015, through June 4, 2018, the
Respondents failed to provide reasonable ongoing AML training to its associated persons. Also, from
March 2016 to June 2018, the Respondents failed to conduct periodic reviews of account activity and
enhanced due diligence with respect to a foreign financial institution (FFI) account, as required by the
United States Department of the Treasury (Treasury) Regulation, 31 CFR §1010.610. As a result of
the foregoing, Respondents violated FINRA Rules 3310(a), (b), and (e), and 2010.
From July 2017 to June 2018, the Respondents failed to establish, maintain, and enforce a supervisory
system, including written supervisory procedures, reasonably designed to prevent a terminated
representative from continuing to access STS email, which contained customer records. During this
period, Escobio was responsible for reviewing all emails sent from or received by a terminated,
statutorily disqualified individual’s firm email address on a daily basis. Escobio failed to perform
such reviews. Respondents also failed to recognize and investigate red flags indicating the terminated
individual may have continued to access his firm email address containing customer records. As a
result of the foregoing, STS violated Rule 30 of Regulation S-P and FINRA Rule 2010. Escobio
caused STS to violate Rule 30 of Regulation S-P, and by virtue of the foregoing, Escobio violated
FINRA Rule 2010. Further, Respondents’ email supervision failures violated FINRA Rules 3110 and
2010.
From July 2015 to July 2017, on two occasions, Escobio, in the course of STS purchasing Rule 144A
restricted securities, negligently misrepresented to corporate bond dealers, through written, signed
certifications, that STS was a qualified institutional buyer (QIB), or was a dealer acting in a risklessprincipal capacity on behalf of a QIB. These certifications were inaccurate since STS was not a QIB,
and it purchased such restricted securities from the dealers on behalf of a non-QIB customer. As a
result, Escobio violated FINRA Rule 2010.
How To Spot A Fraud Finance Advisor (Infographic)
Help For Victims Of Southern Trust Securities
If you have lost funds because of misrepresentation, unsuitable investment, or unsuitable investment strategy from Southern Trust Securities. Then you can take legal action and get justice. Fraud, Malpractice & dereliction of duty should not be taken lightly, especially in this industry. We highly suggest that you notify authorities or seek legal action if your financial advisor or brokerage firm fails to abide by FINRA’s rules are regulations.
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Financial advisors are regulatory & legally obligated to suggest (recommend) the most suitable investments/investment strategies to their clients. Their suggestions should have their client’s best interests and should be appropriate for their client’s goals and needs. Similarly, the brokerage firm which hires financial advisors also has a regulatory & legal obligation to keep a close watch and supervise their Financial Advisors’ practices & behavior. They need to make sure that the financial advisor is not being manipulative or having an unreasonable bias towards certain investments. If the financial advisor and/or the brokerage firm breaches these duties, then the client/customer may be entitled to a full or partial recovery of their losses.
Financial advisors need to have the interest of their clients when giving suggestions related to investments and investment strategies. Reasonable basis suitability requires the advisor to do their best to analyze & identify the risks and rewards associated with their suggested investment and/or investment strategy.
